"Sell in May, go away" wasn't a winning strategy last month. Investors regained interest in Nasdaq stocks, giving the index its strongest gains since February. The Russell 2000, which along with the Nasdaq had been pummeled in April, also managed to eke out a positive performance in May. Meanwhile, by the end of the month, both the S&P 500 and the Dow had set new record closing highs, even shrugging off a disappointing Q1 GDP report. And renewed confidence in emerging markets helped power gains in the Global Dow; for the second straight month, it had the second-best year-to-date performance of the five indices in the table below.
Bonds continued to rally, sending the benchmark 10-year Treasury yield to its lowest level since last June. After bouncing around on either side of $1,300 an ounce, gold resumed the downward path it's been on since mid-March; a nearly $50-an-ounce loss in May's final week took it to roughly $1,245. Meanwhile, oil prices rose solidly above $103 a barrel and settled there for much of the month. We wish all of our clients a fun and safe summer, please contact your FineMark professional if you have any questions.
The Month in Review
- The U.S. economy contracted
at an annualized rate of 1% during Q1 2014; the Bureau of Economic
Analysis said it was the weakest growth rate in three years. Consumer
spending was up 3.1% during the quarter, but couldn't offset the impact
of higher imports and declines in capital investments and spending by
state and local governments.
- The unemployment rate saw its biggest
drop since December 2010, falling from 6.7% to 6.3%; that's the lowest
it's been since September 2008. Also, the Bureau of Labor Statistics
said the number of new jobs created--288,000--was far greater than the
last 12 months' 190,000 monthly average and represented the strongest
job creation in more than two years. However, the report wasn't all good
news; the drop in the unemployment rate also resulted partly from
806,000 people leaving the labor force.
- Warmer weather helped cut
heating costs, which the Commerce Department said was a key reason for
the first monthly decline in consumer spending in a year. The Commerce
Department's May report also showed retail sales flattening out despite a
0.3% increase in consumer prices that put the consumer inflation rate
for the last 12 months at 2%. The Bureau of Labor Statistics said
wholesale prices also rose at a rapid pace; the 0.6% increase was the
biggest monthly gain since September 2012.
- Manufacturing data was
mixed. Durable goods orders saw their third straight monthly increase,
with defense-related spending on transportation the most significant
factor. However, business spending on capital equipment was down 1% for
the month. And after two straight months of increases, the Federal
Reserve's measure of industrial production fell 0.6%. However, the
Institute for Supply Management's manufacturing survey showed expansion
- As more homeowners put their houses on the market in
April, the National Association of Realtors® said sales of existing
homes saw their first monthly increase of the year, rising 1.3%. The
Commerce Department's measure of new home sales also jumped 6.4%.
However, both numbers were lower than a year earlier. Meanwhile, prices
in the 20 cities tracked by the S&P/Case-Shiller 20-City Composite
Index were up 0.9% and housing starts rose 13.2%, with a nearly 43%
increase in apartment construction leading the way. Meanwhile, the
average rate for a 30-year fixed-rate mortgage fell to 4.12%. Mortgage
giant Freddie Mac said that's the lowest it's been since last October,
though it's still higher than last May's 3.81% (an increase that has
been cited as one reason for recent sluggishness in the housing market).
- A Pennsylvania federal grand jury charged five members of a Chinese
military unit with stealing industrial secrets by hacking computers at
six U.S. enterprises in the nuclear, solar, and metals industries. The
indictment is said to be the first involving a governmental body rather
than an individual corporation.
- The eurozone economy grew 0.2%
during Q1, roughly the same pace as the previous quarter, while the 0.3%
growth in the 28-member European Union was slightly less than in Q4
2013. The inflation rate in both areas rose slightly to 0.7% in the
eurozone and 0.8% for the EU, allowing the European Central Bank to
leave its key interest rate unchanged at 0.25%.
Eye on the Month Ahead
will once again be a focus of investor attention. A report from the
congressional budget conference committee established as part of the
agreement ending October's government shutdown is due mid-month, and the
Federal Reserve's monetary policy committee gets its last chance this
year to reduce its bond purchases. Both of those factors could add to
any volatility from year-end profit-taking and general portfolio tidying
by institutional investors.
Key dates and data releases: U.S.
manufacturing, construction spending (12/2); auto sales (12/3); new home
sales, balance of trade, Fed "beige book" report, U.S. services sector
(12/4); revised Q3 GDP estimate, factory orders (12/5);
unemployment/payrolls, personal income/outlays (12/6); retail sales
(12/12); wholesale inflation, due date for congressional budget
committee report (12/13); U.S. industrial production, business
productivity/costs, international capital flows, Empire State
manufacturing survey (12/16); consumer inflation (12/17); Federal Open
Market Committee announcement, housing starts (12/18); home resales,
Philly Fed manufacturing survey (12/19); quadruple witching options
expiration, final Q3 GDP estimate (12/20); personal income/outlays
(12/23); durable goods orders, new home sales (12/24); home prices
Data sources: Economic: Based on data from U.S. Bureau of
Labor Statistics (unemployment, inflation); U.S. Department of Commerce
(GDP, corporate profits, retail sales, housing); S&P/Case-Shiller
20-City Composite Index (home prices); Institute for Supply Management
(manufacturing/services). Performance: Based on data reported in WSJ
Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S.
Energy Information Administration/Bloomberg.com Market Data (oil spot
price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX
Street (currency exchange rates). All information is based on sources
deemed reliable, but no warranty or guarantee is made as to its accuracy
or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any
securities, and should not be relied on as financial advice. Past
performance is no guarantee of future results. All investing involves
risk, including the potential loss of principal, and there can be no
guarantee that any investing strategy will be successful.
Jones Industrial Average (DJIA) is a price-weighted index composed of 30
widely traded blue-chip U.S. common stocks. The S&P 500 is a
market-cap weighted index composed of the common stocks of 500 leading
companies in leading industries of the U.S. economy. The NASDAQ
Composite Index is a market-value weighted index of all common stocks
listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap
weighted index composed of 2,000 U.S. small-cap common stocks. The
Global Dow is an equally weighted index of 150 widely traded blue-chip
common stocks worldwide. Market indices listed are unmanaged and are not
available for direct investment.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2014.
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