Equity Overview

Small cap stocks outperformed large cap stocks in June, for the third straight month.  However, value stocks outperformed growth stocks for the first time this year.

Consumer stocks gained but technology stocks, particularly in the semiconductor space, were weak.  Financial stocks also declined.

Macro Overview

Trade concerns dominated economic headlines in June.  The administration announced 25% tariffs on $50-billion of Chinese exports, whereupon China accused the U.S. of starting a trade war and threatened retaliatory tariffs on $50-billion of U.S. goods.  The administration then warned that if China implemented its threat, the U.S. would impose tariffs on an additional $200-billion in Chinese exports.  Fearing that matters will spiral out of control, business groups including the national Chamber of Commerce have expressed increased concern, and are raising doubts about the president’s comment that “trade wars are good and easy to win.”

Notwithstanding trade worries, other economic news was generally positive.  Statistics reported in June reflected strength in manufacturing, retail, and housing.

As expected, the Fed increased the federal funds rate by 0.25%, to a range of 1.75-2.00 %.  It also projected that unemployment will drop to 3.6%, and signaled that it will likely increase rates twice more this year.

Even with the tightening labor market, wage growth remains modest.  There was some thought that companies would use savings from tax reform to reward workers with higher salaries, but that has not happened.  Instead, companies continue to use their excess cash to buy back their stock at a furious pace.  Repurchases hit an astonishing record of $433-billion in the second quarter, almost doubling the previous record of $242-billion set in the first quarter.