In June, the Dow Jones Industrial Average lost 1.71%, the NASDAQ fell 1.51%, and the S&P 500 declined 1.87%.
The U.S. economy sputtered along in the first quarter.
However, May’s consumer spending increase of 0.9%, the largest since 2009, can be viewed as confirming the expectations of an improving domestic economy.
Second Half
Energy prices remain at low levels, while employment and household income trends continue to drift upwards.
Going forward, I believe that consumer spending may be a tad better than most analysts predict.
If so, conditions for 3%-plus GDP growth in the second half of the year might deliver the goods.
Tame Inflation
Interest rate policy has been, and continues to be, accommodative (to say the least).
Inflation is tame, and official unemployment improved.
Merger and acquisition activity continues its torrid pace and 2015 might turn out to be a record year for deals.
Corporate profits remain elevated, as do corporate stock buyback programs.
Commodities
With commodity prices suppressed because of overcapacity issues in emerging markets, lower costs are boosting corporate earnings.
As reporting season rapidly approaches, the thesis of satisfactory results for the service sector is probably accurate.
Market Stresses
As for equity markets, the lingering criticism of stretched multiples and unsustainable profit margins will be put to the test shortly.
Summer is usually a period of muted trading volumes.
However, with speculation about a rate hike from the US Federal Reserve and geopolitical events on the front page, investors should expect a bumpy trip.
Overseas Action
In looking at equity market performance midway through the year, capital flows continue to be influenced by central banking policy.
With China lowering rates and capital requirements, Abenomics in full force, and Mario Draghi implementing quantitative easing in the old continent, investors have rewarded those locales with stellar returns.
Sector Analysis
2015 has been a struggle for investors in many sectors of U.S stock markets.
Overall, looking at major groups, losers outnumber winners 8-3. Individual sector decliners number 80 versus 65 positive areas.
Groups having strong performance include toys (+20%), healthcare (+9.41%), drug retailers (+9.74%), and specialty retailers (+12%), according to my research.
Oil and the financial group earnings remain flat or worse, although specialty finance has been strong (+12.0%).
Outlook
Looking ahead, I believe strong consumer spending should be a boost to many parts of the market.
The accepted wisdom of a September rate hike by Yellen and the crew should help bolster financials.
Certainly, anything industrial has been a world of hurt during the last quarter.
With the recent months bringing far more volatility, expecting dramatic changes in sector performance seems like the correct approach.
