Equity Overview

Market dynamics reversed in June as value stocks outpaced growth stocks for the first time in months. The financial and health care sectors outperformed, while the technology and consumer sectors underperformed.

Notably, the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google), which together comprised about $2.2-trillion in market capitalization at the start of the month, all fell in June at rates ranging from modest (Facebook down 1%) to substantial (Netflix down 8%).

On the other hand, bank stocks rose smartly as all 34 of the largest institutions passed the Fed’s stress tests for the first time since the tests were initiated seven years ago.

Macro Overview

Economic data reported in June continued uneven.  Retail sales, durable goods orders, and job growth were weak.  Employers added a lackluster 138,000 jobs, capping a 3-month period with the smallest gains in five years.  On the other hand, housing rebounded and consumer sentiment remained near multiyear highs.  And the Commerce Department again raised its estimate of first quarter growth, from 1.2% to 1.4% (recall that the original estimate was 0.7%).

As expected, the Fed raised short-term interest rates by 0.25% (to 1.25%) and maintained its forecast for one more increase this year.  The markets yawned.

The administration’s economic agenda remained stuck in the mud.  The promise to “repeal and replace” Obamacare remained unfulfilled, and the Congressional Budget Office predicted varying degrees of catastrophe would result from the plans proposed in the Senate.  The House made little if any progress on the budget.  Similarly, there was no discernible movement on infrastructure or tax reform.

In international news, the recovery in Europe continued, with economic growth strong and unemployment falling.  As a result, the European Central Bank indicated that it may start winding down its monetary stimulus this year by reducing its monthly bond purchases (thus tracking the strategy initiated by the Fed 3 ½ years ago).