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Before The Bell - As we are set to begin the penultimate trading day of June, the main theme on Wall Street this month has been the return of volatility to the market. Recall that the 30-day stretch started on an upbeat note, with optimism that the U.S. economy was reopening across the country and a much better-than-expected employment and unemployment data for the month of May pushing equities higher. However, the positive sentiment proved fleeting, as the bears were emboldened mid-month by a dour outlook on the U.S. economy from Federal Reserve Chairman Jerome Powell and by a recent spike in coronavirus cases in states that have aggressively restarted their economies. The latter has brought concerns that the business re-openings may need to be slowed in certain areas to combat the novel virus and it has been behind the recent notable market selloffs we have seen on Wall Street, including the one we witnessed on Friday (more below).

That is not to say it has been all tough sledding for investors over the last month. Amid the spike in volatility, we have seen the NASDAQ Composite set and then break its all-time high on a few occasions. The technology sector has powered the index higher, as many of its top companies have benefited from the ability to do business and provide uninterrupted services during the recent stay-at-home and social distancing measures to slow the virus. Standout performers since the COVID-19 outbreak stateside include industry titans Amazon.com (AMZN) and Apple (AAPL). 

Still, as noted above, the final trading session of last week was not a good one for those long equities. The major averages were deep in the red, with fears about a spike in coronavirus cases, including record one-day increases in Texas, Florida, and Arizona, hurting stocks. This has brought worries that it will take longer than expected for output to return to pre-virus levels. That has been a recent unsettling theme for the market in a year that was already apt to bring some uncertainty given the forthcoming elections. Wall Street clearly frowns on uncertainty, hence some of the outsized setbacks we have seen for the major averages in recent weeks, most notably for the Dow Jones Industrials. On Friday, the Dow 30, the NASDAQ, and the broader S&P 500 Index fell 730, 260, and 74 points, respectively. Overall, the selling was broad based, as the small-cap stocks performed just as bad, and all of the 10 major equity groups finished deep in negative territory, with the biggest laggards being the economically sensitive energy and financial sectors. Not surprisingly, decliners swamped advancers on both the Big Board and the NASDAQ. 

Looking ahead to the new trading week, we would not be one bit surprised if the volatility continued. The recent spike in coronavirus cases has unnerved investors who are already bracing for what will likely be a terrible second-quarter earnings season for Corporate America. There also is the possibility for some light volume sessions, as traders get a jump on the long-holiday weekend (the U.S. stock market is closed on Friday in observance of Independence Day). This scenario can often in itself produce some volatile trading sessions. Our recommendation is that during volatile stretches for the market, investors may be best served looking at stocks ranked 1 (Highest) and 2 (Above Average) for Safety by Value Line, as they have historically performed well during turbulent times, which we have seen over the last three weeks on Wall Street, commencing with the more than 1,860-point one-day drop for the Dow 30 on June 11th.

Investors also will be watching the reports from the business beat to try to get a better read on the U.S. economy and if it is starting to turn the corner after a brutal stretch from mid-March to late May. This week will bring reports on consumer confidence (tomorrow), manufacturing activity (Wednesday), and the trade gap and the much-anticipated June employment and unemployment figures (Thursday). We also will get the minutes from the latest Federal Reserve FOMC meeting on Wednesday afternoon at 2:00 P.M. (EDT). The heavy, condensed slate of economic news and the continued focus on the coronavirus pandemic will make for a busy abbreviated week for Wall Street. Investors should note that Treasury Secretary Steve Mnuchin and Fed Chair Jerome Powell will speak to Congress tomorrow, with their commentary having the potential to move the market. 

Before the opening bell, the equity futures are presaging a mixed opening for the U.S. stock market. So far overseas, the main indexes in Asia finished lower overnight, a likely reaction to the declines in the U.S. market on Friday, while the major European bourses are modestly higher, as trading moves into the second half of the session on the Continent. Driving the rally for the Dow 30 this morning (the NASDAQ is looking at a slightly lower opening) are shares of Boeing (BA), which are higher on news that the aerospace and defense giant will begin tests flights for its embattled and grounded 737 Max aircraft. Specifically, the FAA said it will conduct a "wide array of flight maneuvers and emergency procedures" on the 737 MAX that will help the agency assess whether the changes meet FAA certification standards. – William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.