May market review
Shortly after the end of each month, our Chief Investment Strategist David Klassen provides highlights of the market and our funds’ performance. Following is a summarized review of May —
- Global financial markets posted another month of mixed performance. US equity markets had positive results; the S&P 500, which tracks domestic large cap stocks, was up 29% in May and is up 3.23% year-to-date (YTD). The Russell 2000 Index, which tracks domestic small cap stocks, was up 2.28% in May and is up 3.98% YTD.
- International equity markets, however, were down for the month of May. The international developed equity index (MSCI EAFE) was down 51% for the month but is still up 8.60% YTD. The emerging markets index (MSCI EM) was also down 4.00% in May but is up 5.96% YTD. The Japanese Index (Nikkei 225) returned 5.34% in May and is up 17.84% YTD. The US Dollar declined against most currencies.
- In May, US fixed income yields increased (and prices decreased) across the curve. The 30-year bond yield increased 14bps, the 10-year increased 9bps, while the five-year increased by 6bps. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
- Corporate bond prices decreased in May, with the Barclays Aggregate Index down 24% but up 1.00% YTD. The Credit Suisse Leveraged Loans Index (bank loans) was up 0.20% for May and up 3.16% YTD.
Economic & Geopolitical Headlines
- The US economy slowed in the first quarter — its weakest performance in a year — according to the second estimate released by the Bureau of Economic Analysis. The US economy, measured by real gross domestic product (GDP), decreased at an annual rate of 0.7% in the first quarter of 2015, following annual growth rates of 5.0% and 2.2% in the third and fourth quarters respectively in 2014.
- The Federal Open Market Committee continues to maintain its current policy. The Committee anticipates that it will be appropriate to increase rates when it has seen further improvement in the labor market and when it is confident that inflation has moved back to its 2% objective.
- Economic activity in the manufacturing sector saw expansion in May, increasing 1.3 percentage points, with a reading of 52.8 according to the Institute for Supply Management (ISM). A reading above 50 is considered economic expansion.
- US job growth continues to increase. The Labor Department reported total nonfarm payroll employment increased 280,000 in May. March was revised up from 85,000 to 119,000, but April was revised down marginally from 223,000 to 221,000. With these revisions, employment gains in March and April combined were 32,000 higher than previously reported. Both the unemployment rate (5.5 percent) and the number of unemployed person (8.7 million) have shown slight movement since February. Over the past three months, job gains have averaged 207,000 per month.