Key Takeaways:
- Domestic stocks enjoyed a strong May
- Politics continue to dominate the headlines, but fundamentals remain strong
- Short-term Treasury yields exceeded the yield on the S&P500
May produced strong domestic equity returns with the S&P500 up 2.41%. Small cap stocks fared much better with the Russell 2000 producing a strong 6.07%. As we noted in previous monthly commentaries, investors like the domestic profiles of small cap companies and the tax changes seem to be drawing investor capital. Technology stocks continue to lead all sectors, up 7.37% for the month. Energy (+3.04%), Industrials (+3.01%) and Real Estate (+2.07%) posted strong returns. Dividend stocks continue to be out of favor with Telecom Services (-2.28%), Consumer Staples (-1.53%), and Utilities (-1.13%) seeing negative returns. This selloff may have been the result of short-term Treasuries posting higher yields than on stocks.
International markets sold off during the month with developed markets losing 2.25% and emerging markets down 3.54%. Tougher tariff talks in the US and new governments in Italy and Spain and their implications for the future of the Eurozone spooked investors during the month. Strikes in Brazil led to a selloff in May (-16.37%) while Mexico (-13.67%) seems likely to bring in a new a far left Morena party to Congress. This was a good but painful reminder of how volatile emerging markets can be.
Domestic investment grade corporate bonds enjoyed a strong month up 0.71%. Italy’s political drama saw a flight to quality at the end of May drawing investors to US Treasuries. The 10-year Treasury yield peaked at 3.11% but dropped to 2.77% on the Italian fears. It has been slowly rising as investors expect another rate hike from the Fed in June. Municipal bonds, investment grade (+1.15%) and high yield (+2.09%) were among the best performers in fixed income. International Treasuries (-1.66%) and domestic high yield (-0.03%) saw declines.
Please contact any member of the Bernardo Wealth Planning team if you have any questions.
Commentary by:
Bill Roth, CFA
Investment Director
Sources: JPMorgan, Morningstar, Wall Street Journal