In this month’s market review, our Chief Options Specialist, Jason Ayres, reflects on the June market conditions.
Stocks were range-bound for most of May before a final push higher into month end. Meanwhile labour reports continue to reflect record job losses.
Has the stock market gotten ahead of the realities/uncertainties? And how long will it take to restore the economy?
Since the 2008 recession, monetary stimulus and low interest rates have always been prime contributors to asset prices driving higher. Once again this year, the U.S Federal Reserve has vowed to continue the support until at least 2022.
The S&P 500 yield is attractive comparative to the bond market, making it attractive to own stocks.
Despite the relative attractiveness of the stock market, we have seen a pause in the recent rally so far in June.
With stocks recovering so much so quickly, valuations on the high side, and renewed concerns for a second wave, profit taking and an associated pull back is not surprising.
Given the market liquidity and support of the FEDs, a W-shaped recovery may not be in the cards. But risk of a retracement is not unrealistic as investors react to headlines.