Markets & Finance

After a June Swoon


By Sam Stovall Investors were glad to bid this past June goodbye -- and good riddance. The stock market put in its second-worst June performance and third-worst second-quarter and first-half performances since World War II. For the month, quarter, and first half of the year, the S&P 500-stock index declined 7.2%, 13.8%, and 13.8%, respectively. Ouch.

There is one consolation, however: As the table below shows, the market usually bounces back in the month following a bad June. But don't get your hopes too high. The third quarter has a history of disappointing investors. The average third-quarter performance during each of the past 30 years is similar to the performance following dismal second quarters. And even less encouraging, the table indicates that history gives no comforting clues of a second-half recovery.

To sum up, if the performance for the S&P 500 were true to history, we could see a bounce back in July, followed by a slump in August and September, and then an uncertain close for the year.

S&P'S ADVICE. So what's an investor to do? Given the tough times expected for the markets in the months ahead, Standard & Poor's recommended in early June that investors increase their exposure to the defensive Consumer Staples sector, while lowering their exposure to the Health Care and Technology sectors.

Of the 10 sectors in the S&P Super 1500 Composite Index, S&P is now positive on the 6- to 12-month investment outlooks for the Consumer Discretionary, Consumer Staples, and Materials sectors. Its outlook is negative, meanwhile, on the Health Care, Information Technology, Telecommunications Services, and Utilities sectors.

S&P 500 performances in years with heavy June losses:

% Change

% Change

% Change

Year

June

July

Year

2nd Qtr.

3rd Qtr

Year

1st Half

2nd Half

1962

-8.2

6.4

1962

-21.3

2.8

1962

-23.5

15.3

2002

-7.2

???

1970

-18.9

15.8

1970

-21

26.7

1950

-5.8

0.8

2002

-13.8

???

2002

-13.8

???

1969

-5.6

-6

1974

-8.5

-26.1

1974

-11.8

-20.3

1970

-5

7.3

1973

-6.5

4

1973

-11.7

-6.4

1965

-4.9

1.3

1949

-6

10

1982

-10.6

28.3

1991

-4.8

4.5

1966

-5

-9.7

1953

-9.1

2.8

1961

-2.9

3.3

1953

-4.5

-3.3

1966

-8.3

-5.2

1994

-2.7

3.1

1984

-3.8

8.4

2001

-7.3

-6.2

1951

-2.6

6.9

1969

-3.7

-4.7

1984

-7.1

9.2

Avgs.

-4.9

3.1

-9.2

-0.3

-12.4

4.9

Data as of June 28, 2002 Stovall is chief sector strategist for Standard & Poor's


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