Trade negotiations dominated the headlines in May stalling the rally enjoyed to date. Given the strong market performance, investors may have been pricing in a trade deal between the US and China. When the prospects of a deal started to fade in early May, market participants became a little anxious about the future. For all the negative headlines, the S&P 500 is only down approximately 6.5% from its all-time high.

Our international counterparts struggled to gain traction as well. The internationally developed markets held their own better than emerging countries or the US. Of the developed countries Australia, Japan and Canada declined the least.

Bond investors and the Federal Reserve appear to be at odds with each other. Investor disapproval was signaled via the yield curve inversion (17 bps) at the end of the month.  The Fed continues to expect inflation that never materializes; bond investors are more focused on growth. With 2nd quarter GDP expected at 1.7%, they would prefer a more proactive Fed. Overall, it was a solid month for bond investors.

During May, large-cap stocks declined the least earning the honors for best performing segment of the US stock market. Growth outperformed value stocks and the defensive sectors including Utilities and Healthcare were impacted the least. It was a difficult month for US equities.

Notable Market and Economic Happenings:

  • With 95% of S&P 500 companies having reported, 1st quarter earnings are projected to rise 1.4% (Refinitiv). 75% of companies topped analyst estimates.
  • 2nd and 3rd quarter earnings estimates have declined modestly but remain in the low-single digits. Despite the trade headwinds, the US economy appears poised to grow, albeit at a slower pace than last year.
  • With the S&P 500 decline, its dividend yield has increased to 2.1%. It is comparing favorably to the 10-year Treasury yield at approximately 2.1% also. If you are looking for a reason to buy stocks, this is a start.

Inspirational Thought for the Day:

“What lies behind us and what lies before us are tiny matters compared to what lies within us.” – Henry S Haskins