STOCKS END SECOND QUARTER ON THE DOWNSIDE -- YIELD CURVE NEARS INVERSION -- SECTOR RANKINGS REMAIN DEFENSIVE

STOCKS REMAIN UNDER PRESSURE...Stocks are ending the quarter with more selling.  The weekly bars in Chart 1 show the S&P 500 down more than 3% on the week with a monthly loss of more than 8%.   For the year, the S&P 500 is down 20%.  Unfortunately, there are no technical signs of things getting any better.   There are also more negative signs on the economy.  One is the recent drop in commodity prices like copper and oil.  Another is a decline in bond yields which threatens to cause the yield curve to invert.

YIELD CURVE NEARS INVERSION... The weekly bars in Chart 2 plot the difference between ten-year and two-year bond yields.  The chart shows that popular version of the yield curve nearing the zero mark.  A drop below zero would put the shorter yield over the longer yield which is one of the  signs of recession.   Sector rankings remain defensive.

SECTOR RANKINGS REMAIN DEFENSIVE... Chart 3 ranks the eleven market sectors for the month of June.   That offers a view of which sectors investors are favoring, which ones they're selling.    And it remains defensive.   Although all eleven sectors lost ground. the smallest losses were seen in consumer staples, healthcare, utilities, and real estate.   All four are defensive in nature and are usually favored during stock market declines and a weakening economy.   At the same time, the weakest sectors are energy, materials,  financials, consumer discretionary, and technology.  Weak energy and materials reflects recent selling in commodity prices.   Selling in economically-sensitive financials and consumer discretionary stocks are reflective of a weakening economy.   Weak technology stocks explain why the Nasdaq market is leading the rest of the market lower.   They're especially sensitive to a more hawkish Fed.