In June, the Dow was 1.7% lower, the Nasdaq was down 1.7% and the S&P 500 declined 2.0%.
The markets were largely stuck in sideways trading in the beginning of the month with no real positive or negative market indicators to push investors off the fence.
However, the lack of new stimulus from the Bank of Japan in mid-June fueled speculation that the Fed would begin tapering its easing plans and weighed on U.S. markets. After the FOMC announcement, traders started pulling out of risky assets as the markets believe the Fed will begin withdrawing stimulus when unemployment hits the 6.5% mark.
The fall in U.S. stocks was exacerbated by reports of tightening lending actions in China, which raised concerns over the world’s second largest economy.
After a downward revision to first-quarter GDP, investors returned to U.S. stocks, anticipating that the Fed will hold off on tapering.
The top performing non-leveraged ETFS over June include PowerShares Dynamic Networking Portfolio (NYSEArca: PXQ) up 2.7%, PowerShares DB US Deflation ETN (NYSEArca: DEFL) up 2.3% and SPDR S&P Bank ETF (NYSEArca: KBE) up 2.1%.
The networking and communications sub-sector held up, partly due to the growing global connectivity.
“Key secular themes of pervasive mobility, social Internet, and cloud computing continue to drive change throughout the technology and telecom sectors, while emerging trends such as big data and machine-to-machine computing will become increasingly important over time,” writes Peter Wahlstrom, CFA, director with Morningstar.
Over the past month, talks centered around the Fed winding down quantitative easing and a rising rate environment has instigated a deflation trade.
After the steep sell-off, financial stocks rebounded on economic data, like higher home prices and better durable goods orders, which pointed to a strengthening economy.
“New equity highs require higher rates to cause stronger economic growth (bank stocks are the best barometer of macro rehabilitation),” Michael Hartnett, chief investment strategist at Bank of America, said in The Globe and Mail. “In our view the ultimate macro ‘pain trade’ must be that Bernanke has not made a policy mistake but rather is ‘rotating’ away from Wall Street to Main Street via interest rate expectations. Higher rates and higher bank stocks would confirm this.”
The worst performing non-leveraged ETFs in June include PowerShares Global Gold & Precious Metals Portfolio (NasdaqGIDS: PSAU) down 17.5%, Market Vectors Coal ETF (NYSEArca: KOL) down 17.3% and ETS Silver Trust (NYSEArca: SIVR) down 17.0%.
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Max Chen contributed to this article.