The adage to “sell in May and go away” may not have done investors any favors so far. For the second year in a row, all three of the major equity indices gained ground during the month of May (although, we have yet to see what will happen through November, when investors are supposed to re-enter the markets). But, the past month brought us earnings reports from the vast majority of S&P 500 companies that have been positive, with 74% reporting better-than-expected profits and 53% reporting revenue that exceeded estimates. On the bond side, we’ve seen a “stunning” drop in the 10-year Treasury yield, which has fallen from roughly 3% at year’s end to 2.4%, according to Jeff Saut, Raymond James’ chief investment strategist.
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Performance reflects price returns as of May 30, 2014.
To be fair, May’s equity market performance has been unpredictable over the past few years – 2009 was positive, but the month ended in negative territory during 2010, 2011 and 2012. This year, though, U.S. stocks ended the month strong – the fourth consecutive monthly gain for the Dow Jones Industrial Average and the S&P 500 – even after a report of an unexpected slowdown in consumer spending and a downward revision to already weak first-quarter GDP numbers. Here’s what Raymond James Chief Economist Scott Brown had to say: “The GDP revision may cause some confusion. While the headline figure was weaker than expected, most of that was due to slower inventory growth – which bodes well for future growth. Thus, while the 1Q14 growth estimate was revised down, the forecast for 2Q14 ought to be revised higher.”
We’re awaiting economic reports on factory orders, car sales and monthly payrolls in early June, which could offer promising data that some parts of the economy are recovering after the harsh climate seen in the first quarter. Even with a strong second quarter, growth in the first half of the year may not be as robust as previously anticipated, Brown cautioned, since economic data has been distorted by adverse weather, the rebound from the weather and a late Easter holiday.
For the Federal Reserve, developments in Europe and Asia, as well as the domestic housing and labor markets pose risks to its outlook, but the central bank is unlikely to change its tapering strategy in the near future.
While market and economic activity over the course of a day, week or month bears close watching, it’s important to remain focused on the long-term success of your financial plan. Please feel free to reach out to me if you have any questions about the financial markets and how they may impact you. I look forward to hearing from you.
Dennis Zeimet, CFP®, RFC
Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The performance mentioned does not include transaction costs which would reduce an investor’s return.