Time for a June Swoon?

U.S. equities advanced in May to extend their win streak during the month to six years, but can the summer rally continue? First things first, historically June has been a stumbling block for stocks. June has been one of the weakest months for the S&P 500 Index—over the past 10 years, only January sported a weaker average return.

Although June could potentially provide some volatility, we would continue to be a buyer amid any equity weakness. “One of the main reasons we don’t expect a major June sell-off in 2018 is because under the surface, small cap indexes are leading, which is very encouraging. With the Russell 2000 Index making new highs, we believe this could be a signal that new highs for large cap stock indexes may likely follow later this year,” said Ryan Detrick, LPL Research Senior Market Strategist.

So, as we close out May, small caps (and the Nasdaq) have led so far in 2018, both gaining roughly 8% year to date, while the S&P 500 was up less than 2%.  Although that’s a large disparity, it’s actually quite normal.  Since 1950,* there have been 24 years in which the S&P 500 gained 15% or more, and the index has posted year-to-date gains  of only 2% on average through the end of May the following year. In other words, some type of consolidation early in the year after strong gains is normal.

Taking it a step further, when the S&P 500 has been up between 0% and 5% by the end of May, i.e., advancing modestly, the following seven months (the rest of the year) were up 6.8% on average. This is well above the overall 3.8% average return for the latter seven months of the year. With the benefits of fiscal policy, still benign inflation, and strong corporate earnings, as mentioned in Outlook 2018: Return of the Business Cycle, we continue to expect stock indexes to gain 10% when all is said and done in 2018.


**Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Russell 2000 Index measures the performance of the small cap segment of the U.S. equity universe.

The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. All Indexes are unmanaged and cannot be invested into directly.

he NASDAQ Composite Index measures all NASDAQ domestic and non-U.S.-based common stocks listed on the NASDAQ stock market. The index is market-value weighted. This means that each company’s security affects the index in proportion to its market value. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. It is not possible to invest directly in an index.

This research material has been prepared by LPL Financial LLC.

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