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J.P. Morgan Finds Something Amiss as Markets Rally in June

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Jun. 27 2019, Updated 8:39 a.m. ET

Record highs

Last week, the S&P 500 made a record high. Although markets have come off their record highs, the SPDR S&P 500 ETF (SPY) is up 6% for the month and 17.3% for the year. The S&P 500 looks headed for its best first half in a decade, while the Dow Jones Industrial Average (DIA) is staring at its June in 80 years. The Dow Jones had the best January in 30 years earlier this year.

Meanwhile, even as markets have made record highs, some stocks are still below their 52-week highs. Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG) are examples of companies that are still below their highs last year. Both Apple and Amazon are part of Berkshire Hathaway’s portfolio. While Apple and Amazon have outperformed markets, Alphabet has sagged, underperforming the markets by a wide margin.

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J.P. Morgan’s views

J.P. Morgan’s chart analyst Jason Hunter also sees something amiss in the market rally. He pointed that cyclical stocks have been on the sidelines this month and the rally has been led by defensive stocks. In a note, Hunter said, “Rally leadership doesn’t inspire a lot of confidence yet.” Hunter also added, “In our view, either cyclical markets need to start outperforming and take the leadership role in a rally, or the broad equity market is vulnerable to a material setback.” Hunter also pointed to small-cap stocks’ underperformance. The iShares Russell 200 Index ETF (IWM) is still down 1.2% for the quarter. IWM’s year-to-date returns have also trailed the Dow Jones and the S&P 500.

What’s driving markets?

This month, optimism over US-China trade talks and a dovish Fed have helped lift sentiments. However, economic data has been mixed. While the core capital goods data surprised on the upside yesterday, other data points like new home sales, the consumer confidence index, and employment data missed estimates.

Meanwhile, markets will be closely watching the meeting between US President Donald Trump and Chinese President Xi Jinping. Read Markets, Consumers, and Businesses Have a Message for Trump for more analysis.

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