Large cap stocks once again extended the post-election rally in May. Several major equity indices, including the S&P 500, the Russell 1000, the Russell 3000 and the NASDAQ hit all-time highs during the month. The S&P 500 increased 1.41% for the month, while small cap stocks, as measured by the Russell 2000, decreased 2.03%. Continuing a trend, growth stocks’ gain of 2.34% easily outpaced value stocks decline of 0.34%. International stocks again led domestic stocks with developed international stocks increasing by 3.31% and emerging market stocks increasing by 2.97%.

Fixed income markets rallied in May as interest rates declined over much of the yield curve and credit conditions continued to improve. Identical to last month, rates moved up for bonds with shorter maturities (two years and less) but decreased for bonds with longer maturities. As a result, the yield curve flattened during the month. The yield on the benchmark 10-year Treasury decreased eight basis points to 2.21% during the month. The Fed meets again June 13-14 and there is a significant chance of a ¼% rate increase. The Bloomberg Barclays Aggregate Bond Index increased by 0.77% for the month. Credit once again outperformed, with high yield bonds increasing 0.87%, investment grade bonds gaining 1.15% and Treasuries rising 0.65%. Municipals, as measured by the Bloomberg Barclays Municipal Bond Index, increased 1.59% during the month and have now recovered the losses sustained after the election.

EQUITY MARKETS

The post-election equity rally continued, as the S&P 500, Russell 1000, Russell 3000 and the NASDAQ all hit record levels during May. U.S. stocks, as measured by the S&P 500, again posted gains and have risen in every month since the election. Growth stocks dominated value stocks for the month and large cap stocks easily outpaced the loss posted by small cap stocks. Developed international and emerging market stocks generated solid returns and outperformed domestic stocks.

FIXED INCOME MARKETS

The yield curve flattened again in May as yields once again rose for maturities of less than two years and decreased for longer dated maturities. The yield on the 10-year Treasury decreased eight basis points in April to 2.21%. The Bloomberg Barclays Aggregate Bond Index, Treasuries, investment grade corporates, high yield bonds, and municipal bonds all gained in value for the month. Corporate bonds outperformed Treasuries during the month.

ECONOMIC DATA

The economy appeared to bounce back a bit in April from the March slowdown. Importantly, new job creation jumped to 211,000, marking the third month this year it was above 200,000. Unemployment dropped to its lowest level since May 2007. The ISM non-manufacturing survey was strong, indicating continued growth. Industrial production bounced to its best level since January 2015. Housing took a bit of a breather but remained strong. As expected, the Federal Open Market Committee left rates unchanged at the May meeting. The next meeting is scheduled for June 13-14 and there is a significant possibility of a rate increase. The political climate in Washington, D.C. continues to be turbulent with the ongoing Russian probe, the firing of the FBI director and the appointment of a special counsel to oversee the investigation.

Event Period Estimate Actual Prior Revised
Nonfarm Payroll Apr 190,000 211,000 98,000 79,000
Unemployment Apr 4.60% 4.40% 4.50%
ISM Manufacturing Apr 56.5 54.8 57.2
ISM Non-Manufacturing Apr 55.8 57.5 55.2
Retail Sales ex Auto & Gas Apr 0.40% 0.30% 0.10% 0.40%
PPI MOM Apr 0.20% 0.50% -0.10%
PPI MOM ex Food & Energy Apr 0.20% 0.40% 0.00%
PPI YOY Apr 2.20% 2.50% 2.30%
PPI YOY ex Food & Energy Apr 1.60% 1.90% 1.60%
CPI MOM Apr 0.20% 0.20% -0.30%
CPI MOM ex Food & Energy Apr 0.20% 0.10% -0.10%
CPI YOY Apr 2.30% 2.20% 2.40%
CPI YOY ex Food & Energy Apr 2.00% 1.90% 2.00%
Industrial Production Apr 0.40% 1.00% 0.50% 0.40%
Housing Starts Apr 1,260,000 1,172,000 1,215,000 1,203,000
Building Permits Apr 1,270,000 1,229,000 1,260,000 1,260,000
New Home Sales Apr 610,000 569,000 621,000 642,000
Existing Home Sales Mar 5,650,000 5,570,000 5,710,000 5,700,000
Leading Index Apr 0.40% 0.30% 0.40% 0.30%
Durable Goods Orders Apr (P) -1.50% -0.70% 0.90% 2.30%
S&P CoreLogic CS 20-City YOY Apr 5.70% 5.89% 5.85%
Personal Income Apr 0.40% 0.40% 0.20%
Personal Spending Apr 0.40% 0.40% 0.00% 0.30%
GDP Annualized QOQ Q1 (S) 0.90% 1.20% 0.70%
Univ. of Mich. Sentiment May (F) 97.5 97.1 97.7
F = Final, P = Preliminary, S = Second
Source: Bloomberg

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