Time For A June Swoon?

June 03, 2019

Well, it finally happened. The S&P 500 Index pulled back more than 5% from its all-time high, marking the first 5% pullback of 2019. As we have discussed many times over the past two months, the odds were high that some type of pullback or even correction (10% or more off the highs) was likely after the 25% surge off the December 2018 lows.

May likely will be the first negative month of the year (down nearly 6% with two days to go) and likely will be the first time stocks closed in the red in May since 2012.

Now, seasonality hints to more volatility ahead, as June doesn’t have the best history for stocks. “We finally had a 5% pullback, but the bad news is June can be a tricky month for stocks,” explained Senior Market Strategist Ryan Detrick. “Going back the past 20 years, only September has been worse on average, and returns have been quite poor in June after a big drop in May.”

As our LPL Chart of the day shows, stocks have tended to be weak in June over various periods.

Here are six thoughts to chew on as we turn the calendar:

  • When the S&P 500 has lost 5% in May (like it could in 2019), June’s performance has been weak. May has lost 5% or more only four other times in the past 50 years, and stocks subsequently fell more than 5% in June twice.
  • However, when the S&P 500 has been up more than 10% year to date heading into June (like it could in 2019), the S&P 500 has gained 9 of the past 12 times (going back 50 years), and has been higher 1.9% on average.
  • Equity markets in Greece, Brazil, India, Argentina, and Australia are all very strong. If we were truly entering a global recession, we would see more broad-based global weakness.
  • The Chicago Board Options Exchange (CBOE) daily put/call ratio surged to its highest level since late December yesterday, suggesting a good deal of fear is coming into the market – a necessary recipe for a bottom to form.
  • Only 31% of the components in the S&P 500 are above their 50-day moving average. This is nearing washout levels, but could need to go down to 20% before the ultimate low can form. Still, we are getting closer.
  • The American Association of Individual Investors (AAII) Investor Sentiment Survey has more than 40% bears, the highest since the start of 2019. That’s another sign fear is spiking, and pessimism could be a bullish contrarian signal.


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