Market Commentary: Why We Don’t Expect a June Swoon

Why We Don’t Expect a June Swoon

Looking Ahead to June

“It’s a smile, it’s a kiss, it’s a sip of wine… it’s summertime!” – Kenny Chesney “Summertime”

  • The S&P 500 fell 0.5% last week, but that still left it with a 5.0% gain in May. The index is now up 11.3% in 2024 (including dividends).
  • While June is historically a weak month, it fares much better in election years and a strong May suggests strength in June, the rest of the year, and even over the next 12 months.
  • The final inflation report for the month (PCE) confirmed we are not seeing a resurgence in inflation.
  • You can really see that if you look at the narrowing range of categories experiencing high inflation, with noticeable improvement even in 2024 so far.

June historically isn’t a very good month for stocks, which makes mention of a ‘June Swoon’ quite common. Heck, the past 20 years only September has been worse, so could we see June weakness this year? We don’t think so.

First, June tends to do quite well in election years. Election years do have their own typical patterns based on the build-up to the election and then the clarity that comes once it’s behind us. When it comes to election years, the usually weak months of June and August tend to do quite well, with both up a very solid 1.3% on average. Meanwhile, the normally strong month of July is actually a tad weaker than normal in an election year. June has been the 11th worst month the past 20 years, but the past 10 years it is the 5th best month and during an election year it is the 3rd best month.

Here’s the same data, but focusing specifically on election years. As you can see, a summer rally is quite normal.

Here’s a chart we’ve shared many times this year. It shows that when a president is up for re-election, the second half of an election year does quite well, compared with a lame duck president, which typically means rough seas are coming. We will have a lame duck election in 2028, since whether President Biden or former President Trump wins in November, we’ll have a second term president (excluding some unforeseen circumstance, of course). But it’s too soon to think about 2028.

The S&P 500 Index price (that is, excluding dividends) did not reach 5% in May, but including dividends and rounding to one decimal place it did with a 5.0% gain on the nose. While not an official 5% index gain, we think it’s close enough to look at what has happened in the past when there has been a gain of at least 5% in May. We could less poetically look at what happened when there was at least a 4.8% gain, but the numbers will be the same.

It turns out no month tends to see higher prices more likely the year after a 5% monthly gain than May. The year after a strong May averages nearly 20% and is higher six out of six times. Granted, that’s a small sample, but if you’re a bull, you were happy to see a solid May.

Looking a little more at 5% May gains, it turns out June has been higher five out of six times, with the rest of the year median return a very impressive 12.9%. In fact, the past three times May gained at least 5% the rest of year added 14.4% (1997), 15.4% (2003), and 21.3% (2009). Imagine how mad the bears would be if that happened again this year.

Of course, a lot could still happen. But good news can often make investors nervous, so it’s helpful to look at the numbers and see that good news now actually implies good news is likely ahead too.

Big Picture: There’s No Inflation Resurgence

We received our final piece of April inflation numbers last week with the April data for personal consumption expenditure inflation (PCE). While not as well known as Consumer Price Index (CPI) inflation, PCE is the Federal Reserve’s preferred measure, for reasons we discuss below.

Hotter-than-expected inflation data in the first quarter has led to a lot of concern that inflation is likely to rear its ugly head again. However, as we’ve discussed throughout the year, there has really been no need to panic if you just looked under the hood at the numbers. A lot of the heat was due to idiosyncratic factors that are likely to reverse as the year progresses. And the April PCE report released Friday confirmed that.

The Fed prefers PCE to CPI because it’s 1) broader, with more categories, 2) dynamic, as underlying category weights can change as consumers shift spending patterns, and 3) can be revised. PCE has been coming in softer than CPI (the so-called “wedge”) – with headline PCE running at 2.7% year over year versus headline CPI at 3.4%. A big reason is that housing (which we have written and talked about, a lot) makes up over a third of CPI versus just 16% of PCE. Still, as you can see below, housing (dark green bar) is a big reason why even PCE remains above the Fed’s 2% target.

The impact of housing is even more pronounced if you look at core PCE inflation, which strips out the volatile energy and food components. Core PCE is up 2.75% trailing year, which is the slowest pace since April 2021. However, housing is adding 1.04 percentage points to that total. On top of that, financial services inflation is adding another 0.29 percentage points, and that’s running hot because stock prices are up (which drives up the “prices” of portfolio management services). Together, housing and financial services are contributing 1.33 percentage points to the year-over-year core PCE pace of 2.75%, accounting for almost half of the increase! For perspective, in December 2019, housing and financial services contributed a total of 0.68 percentage points to core PCE inflation.

Another way to counter the notion that we haven’t made any progress on inflation since last October is to look under the hood at the distribution of inflation across all categories. I looked at 178 items within core PCE and calculated the distribution of year-over-year inflation at three different times. You can see how inflation really broadened out in June 2022 relative to December 2019 because more categories were experiencing high inflation. The good news is that the distribution is narrowing once again. The picture for April 2024 looks closer to what it looked like in December 2019 than June 2022.

  • In December 2019, just 10% of items had inflation rates above 4%.
  • In June 2022, 58% of items had inflation rates above 4%.
  • In April 2024, 33% of items had inflation rates above 4%.

On the other side, looking at categories that are currently experiencing inflation less than 0% (that is, where prices were actually falling):

  • December 2019: 28% of items
  • June 2022: 10% of items
  • April 2024: 30% of items


Even if inflation remains elevated, we’ve made considerable progress on inflation over the last two years and we expect that to continue. In fact, we actually made some progress on inflation even in 2024. Back in December 2023, 42% of items had inflation rates above 4%, versus 33% in April. And 21% of items were experiencing falling prices in December 2023, versus 30% in April.

Ideally, we’d have seen even more progress, but it’s still progress. The improvement gets to why the Fed didn’t panic about the Q1 inflation data. Neither did we.

In fact, as we look ahead, we see disinflation in the pipeline. We’re continuing to see disinflation for durable goods like vehicles, household furnishings, and appliances as well as grocery prices. The improving numbers can be seen both in official data and anecdotally. To take just one example, Walmart’s CEO recently said their prices are only up 0.4% year over year and in several categories prices are even falling. On the services side, we should see disinflation for both housing and financial services (unless stocks jump another 20% over the next 3-6 months, which frankly, we wouldn’t complain about).

The big picture is that the overall inflation outlook looks good, and that likely keeps the Fed on track to start cutting rates this year, perhaps in September, assuming we get a few more positive inflation reports. That would also be a big positive for equity markets, which, as discussed above, already have quite a bit of momentum and seasonality going for them.


This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.

A diversified portfolio does not assure a profit or protect against loss in a declining market.

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