Weighing the Month Ahead: June Swoon?

Historically, the month of June has not been a particularly strong one for the stock market. According to market analysis firm Kensho, all major U.S. indexes have over the past 10 years on average ended up in negative territory for the month, with the Dow as the worst performer. “Sell in May and go away” is after all a well-known saying in the investing world. However, there are of course various factors that can influence the market.

On the macro front, there are two important things to keep an eye on. The first is the continued strength in the dollar, which has eaten into the results of companies with significant international exposure. A continuation of this rally could put pressure on stocks. Secondly, worries about Greece’s possible default and exit from the eurozone could also weigh on U.S. indexes.

In terms of company-specific factors, Apple Inc.’s (NASDAQ: AAPL) performance is an important part of how the market moves, as it currently has the largest market cap and the highest weighting of any stock on the S&P 500. Apple’s most recent earnings report showed another blowout quarter, which should keep driving momentum to the upside, but from a technical point of view, the stock seems to be hitting resistance at around $133, a level it has failed to breach three times since February.

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Another sector that has been in the news a lot lately is retail. Despite lower gasoline prices, American retail sales have been sluggish over the past few months, with mega-cap retailer Wal-Mart Stores Inc. (NYSE: WMT) especially feeling the pinch. The company released its first-quarter earnings earlier this month, and they were ugly. Profit declined by 7% year-over-year, with per-share earnings of $1.03 missing the consensus estimate. Both same-store sales and overall revenue also missed the mark, paving the way for more downside.

The energy sector is also unlikely to come to the rescue for stocks this month. Exxon-Mobil Corp. (NYSE: XOM) for instance, the largest energy company by market cap, has had a rough time this year. The stock is down 8% year to date, as the slide in crude oil prices has weighed severely on sentiment. However, rock-bottom valuations in the energy the sector could provide some upside, especially if commodity prices rebound.

To summarize, stock markets face several potential headwinds this month, which has historically been a poor one for returns. The appreciation of the dollar is likely to put pressure on the results of many U.S. companies, and the continued threat of a Greek default and exit from the eurozone is not helping sentiment. Turning to company specific factors, Apple’s continued positive momentum could help drive stocks higher for the month, but worries surrounding the retail and energy sectors especially are likely to cap potential upside.

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