Capital Market Update image

May turned out to be an interesting month for the stock market. In mid-May, we had the biggest one-day drop in 8 months following headlines of potential obstruction of justice by President Trump as the S&P 500 fell by 1.7%. Yet despite this “mini-correction, the S&P 500 was still up 1.4% for the month and is now up 8.7% through the end of May. Towards the end of May, the S&P 500 finished with three consecutive all-time highs. So far this year, the S&P 500 has set 20 new all-time closing highs, which is already above the average number of new highs per year (16) since 1954. At the same time, volatility this year has been extremely low with only 4 days of movements more than 1% up or down. The average daily moves of more than 1% in any year since the 1950’s has been 50. For instance, last year there were 48 days of moves greater than 1% and in calendar year 2015 there were 72 such days.

Yet despite the good gains domestically, returns outside the U.S. have been even better. For the month, the MSCI EAFE Developed Market Index was up 3.8% and for the year is up 14.4%. The MSCI Emerging Market Index gained 3.0% for the month and 17.3% for the year, leading all equity segments, while the MSCI EAFE Developed Small Cap Index was up 3.7% for the month and 17.0% for the year.

A combination of low inflation, low interest rates, improving economies and strong corporate earnings have all contributed to global stock market gains. On the international side, valuations have been cheaper than the U.S., thus these markets potentially have more upside potential.

On the bond side, returns have trailed the stock market, but are still positive for the year. The 10-year government bond yield ended the month at 2.20% vs. 2.28% the previous month and below the yearend level of 2.45%. For the year, the Barclay’s Aggregate Bond Index was up 2.4% and the S&P National Muni Index was up 3.5%, while the Barclay’s High Yield Index was up 4.8%.

 

Submitted by David Presson, CFA, Senior Vice President and Director of Investments, First Bank Wealth Management. David may be reached at 314-889-1096 or David.Presson@fbol.com.