• Pavlo Huda

June Market Outlook

Updated: Jun 8

To begin with, we would like to reflect on market performance and behavior in May. Even though the S&P 500 ended the month in a positive territory delivering positive 0.55 percent, while Nasdaq 100 lost some ground recording a 1.26 percent loss, the month of May was truly exceptional this year so far. The market volatility level reached unusual heights and intraday price swings were dramatic, to say the least. We believe, unusual volatility across the broad market was brought by a higher inflation expectation, the possible end of monetary easing earlier than planned before, and falling trading volumes across the markets.

Even though the volatility level began to fall at the end of May, we believe that the market uncertainty is not over. In our view, the market volatility and unusual intraday behavior are to remain throughout the month of June.

However, there are significant opportunities available across the market. In terms of sectors, we are looking into the energy sector and energy stocks, which appear to be opportunistic at this moment since the oil demand continues to rise as the world economies are opening. In addition, given the tensions between the West and Iran, the oil price has additional support for growth. Another opportunity, we believe, is in the financial sector. Last week, major US banks’ representatives testified on Capitol Hill, solidifying the sector's positive growth outlook. US banks appear to be healthy and quite profitable despite a substantial economic slowdown due to the Covid-19 pandemic. Moreover, even though believed to be transitory, inflation continues to rise, bringing the possibility for earlier rate hikes. As a result, the financial sector and specifically banks and lending institutions appear to be an interesting opportunity for investment. As interest rates go up financial institutions enjoy higher profit margins resulting in better EPS and consequently higher share price.

We continue to hear more and more from our clients about a desire to invest in meme stocks and we continue to say, “Don’t buy into it”. We expect more volatility among meme stocks in June and probably throughout the summer. Since the trading volume is relatively low during the summer in general, meme stock would probably fluctuate even more, as a result, hurting retail and long-term investors.

In terms of cryptocurrencies, we continue to believe that it is a reasonable investment, and your portfolio should have a certain amount of capital allocated to crypto. However, the recent volatility in cryptocurrencies shows once again that it is a risky investment and should be treated as such. We expect fluctuations to remain at somewhat elevated levels throughout the month given the fact that the trading volumes continue to fall across the markets.

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