The U.S. equity markets produced mixed results in May, digesting the reopening economy, inflation on the rise and fears of the Federal Reserve beginning to slow their accommodative economic policies. On the month, the Dow outperformed on better-then-expected corporate earnings gaining 2.21% and up 12.83% year-to-date. The S&P 500 rose 0.70% in May and 11.93% for 2021. The technology-heavy NASDAQ Composite felt the recent volatility in the tech sector and finished May down 1.44% but gaining 7% for 2021.
International stocks fared very well in May with improved performance in some European markets. On the month, the MSCI EAFA (Europe, Australia and the Far East) index gained 3.26% and up 10.07% for 2021. The emerging foreign markets, measured by the MSCI EM index, gained 2.32% in May and is up 7.26% for 2021.
The U.S. bond market continues to be volatile caused by the uncertain outlook of rising interest rates and inflation. As you may recall, the Bloomberg Barclays Capital Aggregate Bond index lost 3.71% in the 1st quarter of 2021. In May, however, interest rates – measured by the yield on the 10-year Treasury – declined a bit making way for the “Bar Cap” to gain 0.33%.
As you can see, the outlook for inflation is taking center stage. This outlook is being affected by several factors, namely April’s much higher-than-expected CPI (consumer price index) report of 4.2%, the continuing tight labor market as the economy tries to reopen and the potential for the Federal Reserve to begin to change direction. May’s CPI report, which is not yet out as of the date of this publication, will certainly have the market’s full attention.
At HFG, we remain vigilant of how these events may affect the markets and ultimately your investments. We will design and implement any portfolio changes deemed necessary seeking to either protect portfolio value and/or take advantage of potential opportunities.
As always, please feel free to contact us should you have any questions or want to review and discuss our strategy for your investments.