May Market Commentary

US stocks climbed higher in May hitting new all time highs on upbeat corporate earnings and solid global economic growth. Earnings in the first quarter grew at the fastest pace in six years. Earnings of firms in the S&P 500 grew 13.6% from the year earlier period, well above the 9.1% estimate. Economic news continued to show a resilient economy with US manufacturing activity expanding, the unemployment rate falling to 4.4% and 211,000 jobs were added, retail sales rose, consumer sentiment hit its highest reading since the beginning of the year, home sales hit their fastest pace in a decade in the first quarter and the median home price rose 6.9% from a year ago, industrial production surged, personal consumption expenditures had its largest increase since December, and first quarter GDP growth was revised up from 0.7% to 1.2%. US stocks gained 1.02% in May raising the year to date performance to 7.96%.

Foreign stocks jumped in May on strong corporate earnings and positive economic news. Europe is on pace to post a 16.2% jump in earnings per share in the first quarter compared to the fourth quarter and a 23% surge from a year earlier. EU GDP grew 1.8% in the first quarter and consumer sentiment has reached the highest level since 2007. ECB President Draghi said that despite the improving economic picture and rising inflation in Europe the bank is not ready to cut back on its stimulus. Japan’s economy picked up pace in the first quarter with GDP growth of 2.2%, above expectations. China’s central bank added $24.7 billion to markets to aid investor confidence and the country’s credit rating was downgraded from Aa3 to A1 by Moody’s who cited concerns over the country’s financial strength over the coming years. Developed markets outpaced emerging markets for the month, but emerging markets remain out front of developed markets for the year to date. In May, international stocks rose 3.26%, bringing the year to date performance up to 13.89%.

Bonds gained over the month as interest rates ticked down. The Fed met in May and felt it would “soon be appropriate” to raise short term interest rates. They believe economic growth will improve after the weak first quarter and remain on pace to make two more interest rate increases this year. The statement confirmed investors’ expectations that an interest rate increase at the June meeting was likely. Puerto Rico went under court protection effectively making it the largest ever US municipal bankruptcy. The territory and its agencies owe $73 billion. The 10 year Treasury yield continued to sink in May ending the month at 2.20% down from 2.29% to start the month. In May longer term bonds outpaced shorter terms bonds and muni bonds were the top performing sector. The broad bond market rose 0.77% in May and is now up 2.38% for the year to date.