The U.S. stock market, after falling off its record highs on trade war concerns, may rebound and and recoup most of its losses in June, according to CFRA strategist Sam Stovall. Since World War II, whenever stocks have started the year with strong gains as in 2019, "the market typically digested these gains in May only to advance quite convincingly in June," writes Stovall in a report entitled “No June Swoon: June Usually Rebounds in Strong-Start Years.”
3 Reasons Stocks May Rebound In June
- The S&P 500 has risen an average 3.7% in all of its 5 best year-to-date (YTD) performances through April since WWII
- After the S&P 500's 10 best year-to-date performances, stocks rose an average 1.5%
- Thus far in May, nine of the S&P 1500's 11 sectors declined as well as 80% of the index’s 146 sub-industries. Yet just one-third trade above their 50-week moving average, a sign of a near-term rebound
Source: CFRA U.S. Equity Research; Through April 24
Strong Starts to the Year Typically Lead to June Gains
The S&P 500’s rally in 2019 through April marked the index’s third strongest performance since 1945. The index since then has fallen about 4% in May as of the open of trading on Tuesday. But Stovall is bullish about the market’s ability to recover its losses. After the S&P 500's best five year-to-date performances through April since WWII, the index has risen 100% of the time by an average of 3.7%. Such a rebound would largely erase the S&P 500 index's 4% fall thus far in May.
It's the S&P 500's strong gains during the first four months of 2019, which is similar to past patterns, that makes Stovall think stocks could rebound again this coming June. That's even though stock prices in June, on average, have been flat which every year is included since WWII.
The S&P 500 also did well following the top 10 starts to a year since WWII. It advanced 80% of the time in June, posting an gain of 1.5%, added Stovall.
Another positive indicator for the U.S. stock market is a contrarian one: the miserable performance of the broader S&P 1500 index in May, Stovall says. In the month to date period ended May 24, nine of the S&P 1500's 11 sectors suffered declines as well as 80% of the broader index’s 146 sub-industries. Most important, just one-third of the index's sub-industries trade above their 10-week (50-day) moving average, which historically is when the index begins to rebound, according to Stovall.
Other strategists are bullish about the market way beyond June, with some expecting the S&P 500 to increase by 25% to 30% in 2019, as outlined in an earlier Investopedia story. Deutsche Bank strategist Binky Chadha is among those with the most upbeat forecasts, projecting a year-end target at 3,250.
To be sure, not everyone is optimistic. A large number of respected strategists say that stocks could plunge into a bear market in the near-term. One of the most downbeat forecasts comes from Bank of America, which says that a full-blown trade war could cause the S&P 500 to fall 30%, as outlined in another Investopedia report.