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Stock market bracing for potentially the stormiest stretch of trading this year

The stock market could face its most turbulent week of trading
so far this year, with a trio of potentially destabilizing
events on deck: former FBI director James Comey’s testimony,
the U.K. election, and the ECB monetary-policy meeting. The
trifecta, coming nearly all simultaneously on June 8, threaten
to derail U.S. equities’ record-setting run.

“The hurricane season is forecast to start earlier than normal
this year for the Trump administration as a perfect storm of
events is converging,” said Chris Zaccarelli, chief investment
officer at Cornerstone Financial Partners.

Comey, who was fired by President Trump early last month, on
Thursday will testify before the Senate Intelligence
Committee
on Russia’s role in the U.S. presidential
election as well as whether he was pressured to drop a probe on
possible collusion between Trump’s campaign and Russian
officials.

“The Comey testimony appears to be the second act in the latest
drama on Capitol Hill and we think this installment only makes
the road that much longer to meaningful tax reform and fiscal
stimulus,” Charlie Ripley, investment strategist at Allianz
Investment Management, told financecapital.

Stocks have set numerous records over the past months on
expectations that Trump will usher in a more business-friendly
era through tax cuts and ramped-up fiscal spending.

Aside from Comey’s Senate appearance, former Federal Bureau of
Investigation director Robert Mueller is overseeing a federal
investigation into Russian interference in the 2016
presidential election that could possibly lead to criminal indictments against those in Trump’s
inner circle
.

Across the Atlantic, the British will head to the polls in a
snap election to pick their representatives to the House of
Commons. Prime Minister Theresa May’s Conservative Party
currently has a 17-seat working majority but as support for the Conservatives wanes, the
outcome of the election could reshape the U.K. Parliament and
lead to greater uncertainty as the country negotiates its way
out of the European Union.

On the same day in Tallinn, Estonia, the European Central Bank
could set off tremors of its own if it unexpectedly announces a
policy shift to wean Europe from its
massive stimulus program at its monetary policy meeting.

Economists at Deutsche Bank believe that while the ECB is not
yet ready to announce an exit from its quantitative easing
regime next week, it could telegraph that a tapering is
imminent in a bid to prepare the markets.

Even without the political cliffhangers, the market is entering
a rough patch as summer doldrums set in.

Stocks have recorded a median decline of 0.79% in the two-week
period between May 30 and June 13 over the past 10 years,
according to data from Bespoke Investment Group.

Since 1950, June is among the worst months for stocks with only
August and September having worse average returns as the chart
from Ryan Detrick, senior market strategist for LPL Financial,
shows.

LPL
Financial

Nonetheless, there are reasons for investors to take heart.

“June historically has been a weak month for equities, but the
catch is some of the worst drops have taken place when the
S&P 500 index was beneath its 200-day moving average to
start the month. When the S&P 500 has been in a bullish
trend—above this long-term trendline—June has been higher 59%
of the time versus 33% when starting below,” Detrick wrote in a
recent note.

Stocks kicked off this month firmly above the 200-day moving
average, suggesting that any pickup in volatility could be a
buying opportunity, he added.

Indeed, the market has been extremely resilient with even poor
economic data failing to dampen investors’ appetite for stocks.

The U.S. added 138,000 new jobs last month, below the
185,000 increase projected by economists in a financecapital
survey, while the unemployment rate fell to 4.3%, the lowest
level since 2001, the Labor Department said Friday.

The tepid number, however, sparked speculation that the Federal
Reserve may stop after just one more interest rate hike this
year rather than the two widely expected. The Fed could
increase rates as early as middle of this month when the
Federal Open Market Committee convenes.

All major indexes closed at records for a second session in a
row on Friday with the S&P 500

SPX,
+0.37%

rising 1% for the week while the Dow Jones
Industrial Average

DJIA,
+0.29%

 added 0.6% and the Nasdaq

COMP,
+0.94%

 rallied 1.5%.

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