May market review

June 11, 2014

Shortly after the end of each month, our Chief Investment Strategist provides highlights of the market and our funds’ performance. Following is a summarized review of May —

Markets

  • Global financial markets posted gains for the month of May, as geopolitical tensions continued to ease and investor risk tolerance returned to equity markets. US and Emerging Markets equities gains were strong.
  • The S&P 500 returned 2.35% for May and is up 4.97% for Y-T-D. The Russell 2000 Index was up 0.80% for the month, and down -2.02% Y-T-D. The international equity index, MSCI EAFE, was up 1.62% for the month and is up 3.78% Y-T-D.
  • Emerging markets (MSCI EM) ended the month of May up 3.49%, and are now positive Y-T-D, up 3.39%.
  • The Japanese Nikkei 225 was up 2.29% in May and down -10.18% Y-T-D. This Y-T-D underperformance has been accompanied by a rise in the Yen.
  • Government bond yields decreased across the curve. In May, the 10-year Treasury yield was down 17bps to 2.47%, from 2.65% in April and the 30-year Treasury yield was down 13bps to 3.33%, from 3.46% in March. The Federal Reserve (Fed) again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bond prices increased in May. The Barclays Aggregate Index was up 1.14% for the month and 3.87% Y-T-D. The Credit Suisse Leveraged Loans Index (bank loans) was up 0.61% for May and 2.14% for Y-T-D.

Economic & Geopolitical Headlines

  • The US economy decreased at an annual rate of 1.0% in the first quarter of 2014, according to the second estimate released by the Bureau of Economic Analysis. In the fourth quarter 2013, real GDP increased 2.6%. Economists were anticipating growth around 1.1% for Q1 2014.
  • World view has largely shifted away from crises, with continuing tensions between China and Japan and the Ukraine situation taking a back seat in financial circles; and attention has returned to Central Bank decisions. Specifically in May, the market was trying to predict what Mario Draghi and the European Central Bank would do at their early June meeting.
  • The ISM manufacturing index increased 0.5 in May; U.S. PMI was at 55.4, up from 54.9 in April, indicating expansion in manufacturing in the US continues. Global PMI numbers show that manufacturing continues to strengthen throughout the world. A reading above 50 is considered economic expansionary.
  • The Fed did not meet in May but the minutes of its April meeting were released and were carefully parsed for any clues as to when the Fed would raise rates, or if it might put a hold on the tapering plans. The market seemed to think that the Fed sees the economy as many do, sluggish but continuing to improve.
  • Hiring surged again in May as the economy added 217,000 net new jobs. However, the unemployment rate held at 6.3 percent, following a decline of 0.4 percentage points in April.
  • The number of unemployed persons was unchanged in May at 9.8 million. Over the year, the unemployment rate and the number of unemployed persons declined by 1.2 percentage points and 1.9 million, respectively.
 
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