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Fewer Swoons in June

Number of 1% + Decline Days oer Month of 2nd-Term Presidential Election YearsAs we close out another month, and close in on the all-time high, investors wonder where stock prices are headed next. We see the S&P 500 finally overtaking the 2100 resistance level and then attempting to set a new all-time high. However, we think it will be hard to hold the new high unless 2016 EPS estimates begin to move higher from the 0.1% growth currently expected, based on aggregate Wall Street estimates. The market will probably not support P/E multiple expansion, which is already stretched at 17.9X on 2016e EPS. The S&P 500 will only be able to maintain this elevated price once 2016 estimates begin to improve. What’s more, we think it is too early, in our view, to be encouraged by 2017’s current growth estimate of 14.4%. Plus, June is historically a ho-hum month, showing both little in the way of price increases as well as volatility. Since 1945 it essentially saw the S&P 500 go nowhere in price, and its monthly range of price fluctuations was second lowest of all months. Only December saw less volatility. Finally, during presidential election years since 1952 in which the incumbent was not running, June experienced the fewest number of days in which the S&P 500 fell by 1% or more.

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