Global equities were mixed in May, with U.S. markets outperforming despite continued concerns around economic growth and the protracted negotiations on the debt ceiling. The S&P 500 Index ended the month up 0.4%, pushing year-to-date returns to 9.6%. These gains come despite weakness in index breadth: a concentration of mega-capitalization technology companies have accounted for an outsized portion of returns. Growth handily outperformed value with the Russell 1000 Growth Index gaining 4.6%, while the Russell 1000 Value Index fell 3.9% last month. Outside the U.S., a stronger dollar and broader concerns around economic growth weighed on stocks with the MSCI EAFE Index losing 4.2% and the MSCI Emerging Markets Index down 1.7%. Notably, Chinese equities fell 8.4% in May amid weaker than expected economic data.
Meanwhile, fixed-income returns were also challenged with U.S. yields moving higher during the month following another 25-basis points rate hike by the Federal Reserve at the beginning of May. While expectations for the near-term Fed Funds rate have softened, they continue to reflect a tighter policy bias by the central bank amid persisting inflationary pressures. In response, the U.S. yield curve further inverted with the spread between the 10- and two-year yield ending the month at -75 basis points. Further, the 30-year Treasury yield gained 18 basis points, fueling a 2.8% decline in the Bloomberg Long Treasury Index in May.
In real assets, the commodity complex came under pressure with the Bloomberg Commodity Index losing 5.6% last month. Energy prices continued to decline, reflecting broad recessionary concerns; spot WTI Crude Oil fell 11.3% in May.
Against this market backdrop, we encourage investors to reduce S&P 500 exposure, while maintaining positions in U.S. large-cap value. We also recommend investors increase exposure to U.S. high-yield bonds and broadly evaluate the risk-return benefit of fixed income. Lastly, we suggest holding greater levels of cash within safe-haven fixed-income exposures and urge investors to maintain higher levels of portfolio liquidity.
May Monthly Commentary
Global equities were mixed in May, with U.S. markets outperforming despite continued concerns around economic growth and the protracted negotiations on the debt ceiling. The S&P 500 Index ended the month up 0.4%, pushing year-to-date returns to 9.6%. These gains come despite weakness in index breadth: a concentration of mega-capitalization technology companies have accounted for an outsized portion of returns. Growth handily outperformed value with the Russell 1000 Growth Index gaining 4.6%, while the Russell 1000 Value Index fell 3.9% last month. Outside the U.S., a stronger dollar and broader concerns around economic growth weighed on stocks with the MSCI EAFE Index losing 4.2% and the MSCI Emerging Markets Index down 1.7%. Notably, Chinese equities fell 8.4% in May amid weaker than expected economic data.
Meanwhile, fixed-income returns were also challenged with U.S. yields moving higher during the month following another 25-basis points rate hike by the Federal Reserve at the beginning of May. While expectations for the near-term Fed Funds rate have softened, they continue to reflect a tighter policy bias by the central bank amid persisting inflationary pressures. In response, the U.S. yield curve further inverted with the spread between the 10- and two-year yield ending the month at -75 basis points. Further, the 30-year Treasury yield gained 18 basis points, fueling a 2.8% decline in the Bloomberg Long Treasury Index in May.
In real assets, the commodity complex came under pressure with the Bloomberg Commodity Index losing 5.6% last month. Energy prices continued to decline, reflecting broad recessionary concerns; spot WTI Crude Oil fell 11.3% in May.
Against this market backdrop, we encourage investors to reduce S&P 500 exposure, while maintaining positions in U.S. large-cap value. We also recommend investors increase exposure to U.S. high-yield bonds and broadly evaluate the risk-return benefit of fixed income. Lastly, we suggest holding greater levels of cash within safe-haven fixed-income exposures and urge investors to maintain higher levels of portfolio liquidity.