Financial Tidbits By Ryan LeBlanc
June is full of major market events, which may go a long way toward determining the direction of the stock market for the rest of the year.
Although for some, the approach of summer means it’s time to slow down and plan vacations, the markets and global economies are doing anything but that.
As we approach the midpoint of this year and the kick-off to summer, events are ramping up — not slowing down — making this a good time for a check-in and look ahead.The month of June starts off with an OPEC (Organization of the Petroleum Exporting Countries) meetingand the monthly jobs report, followed by policy meetings for the Federal Reserve (Fed), European CentralBank, and Bank of Japan, as well as the anticipated “Brexit” vote on whether the U.K. will remain in theEuropean Union.
These events could be viewed as opportunities to provide clarity and potential resolutionto issues that have been years in the making. The path of the Fed’s rate hike campaign could ramp up andplace us firmly in the midst of a rate normalization cycle.
We have endured a volatile two years for oilprices — another OPEC meeting may provide important confirmation that we are entering a period of greaterstability.
And after overcoming past threats, such as Greece, the EU may face the first country to exit afterits more than 20 years in existence as the U.K. goes to the polls.
How the U.S. and global economies react tothese events will be watched closely by all market participants.For the OPEC meeting, the market’s expectations are low and a production freeze seems unlikely, so anymovement toward restraining supply could push oil prices higher.
Although we don’t expect much action outof this meeting, with oil prices ranging from as high as over $100 per barrel in June 2014 down to $26 perbarrel in February 2016, it still warrants close attention.Concerning central banks overseas, we do not expect major policy shifts at their June meetings, but achallenging growth environment in both the Eurozone and Japan suggests we may see further loosening ofmonetary policy in the coming months.
Fiscal policy will also be on watch, such as Japan’s recent decision topush a scheduled sales tax increase all the way back to October 2019.The markets will be particularly focused on the June 14–15 Federal Open Market Committee (FOMC)meeting. We believe the market may still be underestimating the probability of an early summer rate hikeand another by year-end — our base case and a potential source of near-term volatility.
After years of low interest rates, the second hike will reaffirm that we are finally normalizing rates. Thus, the outcome of this meeting (or the following one in July) could be the turning point here, as we watch how the U.S. economy and market participants can handle this shift.
Last but not least, should the British people vote to leave the EU, it may be seen as a lack of confidence in the second-largest economic region worldwide, which may spark other anti-EU movements across the continent,drag down economic activity in the U.K., or weaken London’s place as a global financial center.
It could also lead to a spike in financial market volatility. The latest polls, however, do show “remain” ahead of “exit.”
All in all, we are in for a busy month in June. Instead of easing into a low-key summer, we will be watching these events and the impact they may have. Coupled with the age of the economic cycle and election-related uncertainty, stocks may experience continued volatility over the summer.
Although these ups and downs can make for a bumpy ride, we expect a dip may be an opportunity to buy. As we prepare our market outlook for the remainder of the year, we continue to expect the S&P 500 to deliver mid-single-digit gains for the year and end 2016 slightly above current levels.