June risks could cause ‘summer of shocks’

Wary traders fear there is potential for volatile market

Wall Street is eyeing markets in June with suspicion and trepidation as traders monitor a number of potential shocks that could derail stocks this summer.

Investors are on high alert even though the Dow Jones industrial average is coming off its best weekly advance in 10 weeks. The Dow’s 2.1% jump was its best since the week ending March 18.

The angst is driven home by the foreboding language that evokes coming storms used by Wall Street strategists in recent investment reports. Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, warns that markets are entering “event risk June,” which could culminate in a “summer of shocks.” The investment team at Cornerstone Financial Partners says the market could be in for a “cruel, cruel summer.”

Are there land mines? “Yes, the potential is there,” said Brad McMillan, of Commonwealth Financial Network.

The key word, however, is “potential,” as the three shocks McMillan fears could upend markets most are viewed as low-probability outcomes. That’s precisely what makes the risks greater: Investors downplay worst-case outcomes and could be caught improperly positioned.

Adding to the sense of caution is that June is among the worst months for the Dow. Since 1950, it has posted an average decline of 0.3% in June, which ranks 11 out of 12 months, according to The Stock Trader’s Almanac.

McMillan ticks off three things that could cause market volatility to spike in June when stocks are fully valued if not overvalued and

Adam Shell @adamshell USA TODAY