Will Bulls Return in June After a Bear Raided May?

May was downright ugly and June could bring more gloom to world stock markets and exchange traded funds.

Today marked the end of May and this year’s performance certainly validated the “sell in May and go away” mantra that we oftentimes hear in the popular press.

Until May, major  U.S. indexes had put in a half year winning streak  but that all ended today with the Dow Jones Industrial Average (NYSEARCA:DIA) dropping 0.2% to finish out the month with a 6.2% loss.  The S&P 500 (NYSEARCA:SPY) suffered a similar fate with a monthly decline of 6.3% and the Nasdaq (NYSEARCA:QQQ) gave up 0.4% today to tally a monthly loss of 7.2%. The Russell 2000 (NYSEARCA:IWM) index of small cap stocks joined in the not so happy party by dropping 8.1% for the month.

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The month’s losses were driven by chaos in Greece and Spain and fear over a financial demise of the Euro and Eurozone economies and an ongoing slew of economic reports that point to slowing economies in the United States, Europe and China.

Today’s reports were mostly gloomy, as well, as private payrolls reports from ADP came in below expectations, weekly  jobless claims rose, 1Q GDP estimate was revised downward to 1.9% from the most recent 2.2% and Chicago PMI for May declined to 52.7 from last month’s 56.2%.  Anything above 50 in this reports indicates expansion but clearly the numbers are decelerating as we move into the summer months.

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Of course, worries over Europe were a big driver of global markets this month as policy makers struggled with Spain’s banking crisis and the Greek elections rapidly approach on June 17th.  Both of these situations have the potential to be both Euro-negative and stock market negative as we move into June.

Global indexes were also slammed in May as worries mounted, with Spain’s IBEX leading the way south with a decline of 13%, the German DAX dropping 7.3%, Hong Kong off 12% and the Nikkei dropping 10% for the month.

But, as always, there were winners and losers and in the winning column we find U.S. Treasuries, iShares 20+ Year Treasury Bond Fund (NYSEARCA:TLT) +9.6% for the month and Vanguard Extended Duration ETF (NYSEARCA:EDV) logging + 15.01% for May.

Bonds are at or near record lows with the 10 year U.S. Treasury yield at record lows, 1.59%, the 20 year Treasury (NYSEARCA:TLT) at 2.27%, another record, and the 30 Year Treasury Bond just fractions above its all time low recorded during the height of the financial crisis in December, 2008.

So what will June bring?

It all starts tomorrow with the monthly Non Farm Payrolls and Unemployment Reports and then continues with the pivotal June elections in Greece, the Federal Reserve meeting on June 19-20 as Operation Twist comes to an end and the ongoing struggle by European policy makers to get in front of the crisis in Spain.

Bottom line: Technical indicators point to further weakness ahead and the fundamental situation is scary.  Global investors have been trained to expect the Federal Reserve to step in and save the day but its options become more limited and less effective as the economy continues to falter.  Expect more volatility and potential financial sand traps as we head into June and the “lazy, hazy, crazy days of summer.”

John Nyaradi is the author of The ETF Investing Premium Newsletter.

Disclosure: John Nyaradi’s service holds a position in iShares 20+ Year Treasury ETF (NYSE:TLT)