June's trading was drastically poor despite some small bursts of optimism through the month. If traders were looking at economic reports, the month of June should have been a fairly positive. But the global uncertainty, more accounting scandals, and a general sense of pessimism ruled. The FOMC meeting on June 25th and 26th didn't shed much light for the stock market. The Fed didn't raise the federal funds rate target or change its bias from a neutral stance; moreover, most economists aren't expecting a rate hike anytime soon.

The month of June began with a triple-digit loss, as weakness from May and a fresh batch of accounting worries hit the market. Much like May, investors remained pessimistic about corporate profits despite continued positive news on consumer spending and manufacturing. Major indices declined from higher levels at the beginning of the month, though there were some positive days. June 5th, for example, saw market players try to recover some early losses as the Dow hit its highest level for the month. This positive momentum could not be maintained in the face of fresh earning warnings coming out of the microchip sector. The rest of the month was a mixture of heavy losses and small bouts of bargain-hunting rallies. More trouble in the corporate accounting mess emerged late in the month.

Stock prices in technology and telecommunications plummeted as a host of earnings warnings and corporate accounting concerns pressured these industries. Retailers had a fairly successful month of June due to good weather and discount shopping. Energy stocks also did well as oil prices consistently crept higher. Health care stocks declined after gains in recent months. Housing-related stocks were still the best bets to invest in as this sector has been outperforming all others, thanks to surprisingly resilient consumer demand for housing. The financial sector -- often more in tune with the economic situation -- performed relatively well as there are still strong signs of recovery in the U.S. economy. Travel and leisure stocks stepped back from May's positive performance. Among transportation stocks, the airline industry dipped following the booking of summer discount fares, while automobile stocks declined slightly.

Looking at the performance of major indices week-by-week, it was normal to see four out of the five trading days close with losses. The best performances, June 5th and June 17th, came on days when major technology firms showed positive earnings. Sadly, none of these positive sessions could be built on. The Dow closed the month with a 6.8 percent loss, while the NASDAQ recorded a decline of 9.3 percent. The S&P 500 also declined, finishing down 7.3 percent for June and remaining below levels not seen since the September 11th disaster. The Russell 2000 fell by 5.1 percent in June. The market-encompassing Wilshire 5000 index showed a decrease of 7.1 percent for the month.

Treasury Markets:
Flying to quality while raising a ceiling
The Treasury market traded positively for most of the month of June. Treasury yields fell early and often despite economic data pointing to a firm, but inflation-free, recovery. The consistently erratic stock market proved a boon for Treasuries. There were few surprises from economic reports, which still show a recovery in progress, although strong housing figures were negatives for Treasury market players. The final days of the month saw a stronger-than-expected revision to first quarter GDP, which hurt bond prices slightly.

There was much confusion in the Treasury market this month as the U.S. Treasury Department showed some signs of trouble. With Congress waiting till the end of the month to raise the debt ceiling, the Treasury had to postpone auctions on weekly bills and 2-year notes. But the confusion didn't affect markets that much as the weakness in stocks still kept market players interested in Treasuries. But the tune might have been different if equities had performed well.

At the FOMC meeting on June 26th, the Fed made no moves and still showed no signs of wanting to raise interest rates. During the month, commentary from Fed members and Chairman Greenspan was slim. The end of June saw a healthy interest in Treasuries as the stock market continued to crumble.

As can be seen in the chart above, yields declined in June. The mid-month figures saw a large downward-trend in yields, which abated slightly as the month ended. The 30-year bond traded with less excitement than other securities, yet still managed to shed 11 basis points from its yield. The 10-year note decreased by 24 basis points, while the 5-year note decreased by 22 basis points. The 2-year note outpaced the other securities, declining by 39 basis points in June. The 3-month bill showed a smaller decrease, closing the month with a 2-basis point drop in its yield.

Damir Fonovich, Economist, Econoday