Markets experienced volatile times in June, weighed down by the now-familiar specter of trade war fears. Trump upped the ante on this front against ally and rival alike. On one hand, he railed against Canada and the EU, levying tariffs on auto imports. On the other, he imposed stiff tariffs on China with the threat of more to come if China chose to retaliate. Meanwhile, the Fed raised rates and took a hawkish view on the economy. Oil prices surged on supply concerns, principally on U.S. sanctions against Iran.
The Nasdaq and S&P 500 gained 0.9% and 0.5% for the month of June, while the Dow lost 0.6%. Most of the month saw volatility in markets with stocks showing mixed performances. Trade war fears, which have gripped markets for quite some time, took its toll on stocks throughout the month.
June was also an eventful month that saw the historic meeting between Trump and North Korea’s premier Kim Jong-un. However, markets had high expectations from the meeting but not much impact was seen with stocks tumbling the day after the meeting.
Moreover, as anticipated the Fed increased interest rates by 0.25% and hinted at two more hikes by the end of this year. Also, the Fed announced the annual stress test results for banks and gave OK to 32 of the 35 biggest banks in the United States to raise their dividends and buy back shares.
Mixed Economic Signals
Economic data released last month was largely mixed in nature. The unemployment rate declined from 3.9% in April to 3.8% in May, the lowest in 18 years. Additionally, the economy added 223,000 jobs in April, exceeding the consensus estimate of 190,000.
According to the Department of Commerce’s final estimate, GDP increased at a 2% pace in the first quarter. This was significantly lower than the earlier estimate of 2.2%.
Consumer spending expanded only 0.9% in the first quarter, less than the earlier estimate of a 1% increase. It was the slowest pace of growth since the second quarter of 2013 and reflected a downward trend in healthcare spending.
U.S.-Canada Trade Tensions Heighten Post G-7 Summit
Trade tensions remained a recurrent theme through the month. Speaking at the G-7 summit in Canada on Jun 9, Trump said that trade between member countries should be free from tariff and non-tariff barriers.
In a series of tweets on Jun 11, Trump attacked Canada and other U.S. allies. Through his tweets, Trump placed a cloud on trading ties between the United States and its traditional allies. (Read: Bet on 5 Top-Ranked Small Caps as Trade Tensions Escalate)
After the EU announced that from Jun 22 import tariffs of more than $3.2 billion will be levied on a variety of American products, Trump retaliated with auto tariffs. On Jun 22, the American President threatened to levy a tariff of 20% on cars and other automobiles imported from EU countries. (Read: Will Trump's Tariffs Spell Doomsday for U.S. Automakers?)
U.S.-China Trade Conflict Escalates
On Jun 15, President Trump announced that the United States was imposing tariffs on $50 billion of China’s imports. On Jun 16, China’s finance ministry stated that it will launch tariffs of 25% on $50 billion of U.S. imports. Tariffs on $34 billion of U.S. imports, primarily on agricultural goods, will commence from Jul 6. (Read: 6 Defensive Stocks to Buy as Trade Tensions Flare Up)
On the evening of Jun 18, Trump said that he has asked the U.S. Trade Representative to identify $200 billion worth of Chinese imports on which additional tariffs of 10% could be imposed. In the event that China chooses to retaliate, tariffs would be levied on another $200 billion of goods. (Read: 5 Low-Beta Stocks to Buy as Trade Conflict Intensifies)
On Jun 27, President Trump said he has decided to strengthen the Committee on Foreign Investment in the United States (CFIUS), which will assess potential threat from Chinese investment in U.S. companies. Later in the day, Treasury Secretary Steven Mnuchin stated the government can block any American joint venture in China if the firm transfers critical technologies to China.
Fed Hikes Rate, Most Banks Sail Through Stress Tests
On Jun 13, the Federal Reserve increased the benchmark short-term interest rate from 1.75% to 2%. Additionally, several changes were made to its policy statement, the most notable being that economic growth is “rising at a solid rate”, instead of the “moderate” pace witnessed in May.
The fresh language inserted into the statement indicated a more hawkish stance. The Fed also served up a more optimistic view on economic growth and raised its inflation expectations. (Read: 5 Top-Ranked Bank Stocks to Profit From Fed's Rate Hike)
Meanwhile, the Federal Reserve released the first round of its annual stress test results. All 35 banks that underwent the annual Dodd-Frank Act Stress Tests showed that they have enough capital buffers to weather an economic meltdown and recessions modelled by the Fed. (Read: Big Banks Clear Dodd-Frank Stress Test: 5 Top Winners)
Shares of all major banks jumped after the Fed announced the results of the final leg of the annual stress-test exercise. The Fed gave an OK to 32 of the 35 biggest banks in the United States that hold 80% of the total assets in the U.S. financial system, to raise their dividends and buy back shares. (Read: Winners & Losers From Fed's Second Round Stress Test Results)
OPEC Raises Production Cap, Oil Hits Multi-Year Highs
On Jun 22, a congregation of OPEC countries and non-OPEC allies led by Russia assembled in Vienna to take a decision regarding an 18-month old agreement to curb output in order to meet strong global demand for crude oil.
OPEC decided to raise production quota by 624,000 barrels a day, much lower than 1.5 million barrels a day demanded by Saudi Arabia and Russia. Despite this decision, Saudi Arabia has signaled that the country is not confident enough to bring on production quickly enough to replace a shortfall.
On Jun 29, crude prices surged on the back of renewed fear of a global oil shortage in the second half of 2018. WTI crude gained 70 cents or 1% to hit $74.15, its highest close since Nov 24, 2014. Brent crude surged $1.59 or 2% to $79.44, closing just below a three and a half year high.
U.S. sanctions against Iran are threatening to throttle global supplies even as demand surges. According to a report by The Wall Street Journal, the United States wants all countries to stop importing oil from Iran by Nov 4. This is part of an effort to isolate the country economically and politically, per a senior U.S. State Department official. (Read: U.S. Crude Crosses $70 on Supply Fears: 5 Top-Ranked Picks)
Moreover, Venezuela is plagued with economic instability, massive debt load, unrest in the workforce and hyperinflation. Internal disturbances in Libya are also leading to worries over supplies.
5 Star Performers for June
I ran a screen on Research Wizard for companies with the following parameters:
(Click here to sign up for a free trial to the Research Wizard today):
- Percentage price change over the last 4 weeks greater than or equal to 20%
- Forward price-to-earnings ratio (P/E) for the current financial year (F1) less than or equal to 20. This picks out stocks that are good value choices
- Expected earnings growth for the current financial year greater than or equal to 20%
- Zacks Rank less than or equal to 2: This ascertains stocks that have shown above-average returns over the last 26 years.
(See the performance of Zacks’ portfolios and strategies here: About Zacks Performance).
Here are the top 5 stocks that made it through this screen:
Salem Media Group, Inc. (SALM - Free Report) is a radio broadcaster, Internet content provider and magazine and book publisher specializing in Christian and Conservative content.
Price gain over the last 4 weeks = 35.5%
Expected earnings growth for current year = 26.9%
Salem Media Group has a Zacks Rank #1 (Strong Buy). The stock has a P/E (F1) of 15.61x.
GeoPark Limited (GPRK - Free Report) is an explorer, operator and consolidator of oil and gas. The company operates primarily in Chile, Colombia, Brazil, Peru and Argentina.
Price gain over the last 4 weeks = 32.1%
GeoPark has a P/E (F1) of 10.32x and its expected earnings growth for the current year is more than 100%. The stock holds a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BG Staffing, Inc. (BGSF - Free Report) is a national provider of temporary staffing services in the United States across a diverse set of industries.
Price gain over the last 4 weeks = 25.9%
Expected earnings growth for current year = 34.7%
BG Staffing has a Zacks Rank #2 (Buy). The stock has a P/E (F1) of 17.10x.
Penn Virginia Corporation (PVAC - Free Report) is an independent oil and gas company operating in the United States.
Price gain over the last 4 weeks = 23.1%
Penn Virginia holds a Zacks Rank #2 and its expected earnings growth for the current year is more than 100%. The stock has a P/E (F1) of 9.18x.
PetMed Express, Inc. is a leading nationwide pet pharmacy.
Price gain over the last 4 weeks = 22.5%
Expected earnings growth for current year = 25.3%
PetMed Express holds a Zacks Rank #2. The stock has a P/E (F1) of 19.32x.
Will Markets Stabilize in July?
Calm continues to elude the markets with trade concerns significantly raising market volatility. This is likely to be the trend going forward even as Trump looks to implement his protectionist agenda. As a result, several categories of U.S. stocks, tech stocks and industrials in particular, are feeling the heat.
Economic indicators have also taken a backseat in the interim. However, unemployment remains low and the Fed seems more optimistic about the economy. Investors will likely look toward strong fundamentals and another bullish earnings season for solace in the trading sessions which lie ahead.
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