On Wednesday, June 3, we titled our QuickTakes "June Swoon?" As it turned out, the question mark should have been an exclamation mark. On Friday, June 5, stocks swooned unmistakably. The S&P 500 closed at 7,383.74, down 2.64%. The Nasdaq and S&P 500 equal-weight indexes fell 4.77% and 1.45%, respectively.
The catalyst was a stronger-than-expected payroll employment report that reinforced what we have been saying for weeks: The labor market is improving. Inflation remains a bigger risk than unemployment. That puts a federal funds rate (FFR) hike back on the table sooner rather than later, in our opinion. Add SpaceX's coming mega-IPO, which already may be pulling capital away from other stocks, and market volatility was bound to pick up. For now, we see the recent action as a rotation, not the start of a correction, though the June swoon may not be over yet.
Consider the following:
(1) Stock prices. The S&P 500 remains comfortably above its 50-day moving average (dma) of 7,200.96 and its 200-dma of 6,879.38 (chart). Friday's drop was sharp, but we are still in a bull market, in our opinion.
