June is typically a quiet period for the stock market, which would be a relief after this spring’s wild swings. But due to the Federal Reserve’s rate hikes, economic uncertainty and geopolitical events, June this year is unlikely to follow the historic pattern of low volatility and shallow gains. Even if the market does rally, it is likely to prove temporary, analysts say. Since 1945, according to CFRA, the S & P 500’s average June gain of 0.14% is in the bottom third in terms of monthly performance. Stocks are higher on average 55% of the time in June, the third weakest monthly gain, and average volatility is very low, second only to December. May was on track for a slight gain of 0.2%. Were it to close down on the month, four months of 2022 would have seen negative returns. According to Sam Stovall, CFRA chief investment strategist, the S & P has on average declined in June by 1% in the years that already included four or five months of losses. Stovall expects continued uncertainty and choppiness in June. “We have not hit bottom in our opinion. We really haven’t had the shakeout we need,” he said. Because the Fed appears poised to raise interest rates by another half a percentage point when it next meets on June 14-15, the market is on high alert when it comes to comments from Fed officials. Fed Governor Christopher Waller Tuesday said he is prepared to keep raising rates by 50 basis points and to take the fed funds rate above neutral to fight inflation. That created nervousness in a market already rattled by a runup in oil prices Tuesday, after the European Union said it would ban most Russian oil imports. West Texas Intermediate crude futures were higher by more than 2%, trading above $117 per barrel at midday. Oil is a double-edged sword for the stock market, as it boosts energy stocks while also driving up inflation. The tensions around reduced supply from Russia could increase this month, as China reopens after its Covid lockdowns and reaches into the global oil market for more fuel. Markets in June are likely to continue to be jittery around headlines related to Russia’s invasion of Ukraine. “Always be leery of a quiet summer in terms of geopolitical issues,” said Quincy Krosby, chief equity strategist at LPL Financial. She noted that beyond the Ukraine war, China is acting more aggressively by flying jets into Taiwanese air space. She said June is unlikely to follow a normal historical pattern. “Nothing is typical now,” said Krosby. “The market is trying to decipher where we are headed in terms of economic growth. Whether or not we’re heading into a recession versus a growth scare.” That means economic data will be key, starting with Wednesday’s ISM manufacturing data for May, she noted. ISM numbers “have a high positive correlation, not just with the economy but with the market,” said Krosby. “You pay attention to their new orders. You pay attention to their hiring expectations. They give you a picture of what companies are thinking and of what they’re seeing.” ISM manufacturing is expected to slip to 54.5 from 55.4, according to Dow Jones. Next up on the economic calendar would then be Friday’s May employment report. Economists expect 325,000 nonfarm jobs were added in the latest month, compared to 428,000 in April. Jobs data will be followed closely to see how the labor market is responding to Fed rate hikes. If it begins to weaken, that would feed fears the Fed’s actions could slow the economy too much. “The headwinds persist, and the hope is some of these headwinds, such as the supply chain constraints, ease,” Krosby said. In the next week, the May consumer price index is released on Friday, June 10. That could be an important piece of information, since CPI is expected to have peaked in March. A hotter-than-expected number would be a negative for a market, but a cooler number could calm concerns around how aggressive the Fed will be in the future. The Fed’s two-day meeting starting June 14 could be the big event of the month. The market is braced for a half percent rate hike, and that could be taken in stride. What’s unknown is what the Fed will say when it releases its economic projections and interest rate forecasts. Fed Chairman Jerome Powell also speaks following the meeting. “A headline could change the trajectory,” said Krosby, adding that if Powell were to say the Fed sees an easing of inflation, that would be a positive for stocks. “The market is looking for those kinds of comments.” Stovall said investors would become more optimistic if they thought the Fed was going to front load rate hikes and move to pause its tightening in the fall. But that outcome is uncertain. “I would say there’s still so much uncertainty out there, so much tug of war between bulls and bears,” Stovall said. “If we don’t get a full monthly big move, one way or other,” in terms of stock price, “at least we’ll have volatility one way or other.”
