Stocks bounced back in May, with the S&P 500 rallying +5% to bring the blue-chip index into double-digit gains for the year at +11%.
Smaller company stocks kept pace with their large cap peers on the month, though the Russell 2000 index is only up +3% year-to-date.
Overseas stocks gained just +3% in May, dragged down by emerging markets as investors pulled money out of China on perceived economic weakness. The MSCI ACWI ex-US index is up +6% YTD.
Within fixed income, treasury yields moderated as inflation data came down after a hot first quarter, though markets don’t expect to see the first Fed rate cut until this fall. The Bloomberg US Aggregate Bond Index clawed back +1.7% in May and is now down -1.7% this year.
Commodity prices continued to rally, with gold prices notching yet another monthly closing high in May, though oil prices fell on concerns of excess supply. On balance, the Bloomberg Commodity index gained +2% for the month (+7% YTD).
Our proprietary Three Dials readings were unchanged through the end of May, as we outline below:
- Market Sentiment and Momentum: (Positive ➕)
Global equities found strong technical support after their April fall and rallied back to new highs, an encouraging sign as we head into the traditionally quiet summer months.
While the potential remains for bouts of volatility, our Momentum Dial remains in a Positive position.
- Economic Fundamentals: (Negative ❌)
Interest rate uncertainty continues to hang over the economy, with both new manufacturing orders and pending home sales plummeting as corporations and households alike put off big ticket purchases as they wait for clarity.
As question marks remain over the Fed’s impact on economic activity, our Fundamental Dial remains Negative.
- Valuation: (Negative ❌)
Price returns on the S&P have outstripped earnings growth by roughly 50% over the past ten years, an unsustainable level of long-term multiple expansion.
With the elevated risks of a P/E contraction, our Valuation Dial remains in a Negative position.
Our composite Three Dials reading remains in a Moderately Defensive position through the end of May, with two dials Negative and one dial Positive.
Sources: Morningstar
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.
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