THE MONTH IN BRIEF
U.S. stock indices rose in May, even as some key economic indicators left something to be desired. Most overseas equities markets also saw May gains with Emerging Markets besting all equity asset classes, which has been the case for the last 3 months with Emerging Markets coming in at 7.02% versus 3.97% for the S&P 500.
A 60/40 stock/bond investor using the indices below has received a 4.14% return for 2014 through the end of May.
Key index performance shown in the table below.
U.S. stock indices rose in May, even as some key economic indicators left something to be desired. Most overseas equities markets also saw May gains with Emerging Markets besting all equity asset classes, which has been the case for the last 3 months with Emerging Markets coming in at 7.02% versus 3.97% for the S&P 500.
A 60/40 stock/bond investor using the indices below has received a 4.14% return for 2014 through the end of May.
Key index performance shown in the table below.
DOMESTIC ECONOMIC HEALTH
Consumer spending had retreated 0.1% in April, even with consumer incomes up 0.3% for that month. That news from the Commerce Department came 24 hours after Q1 GDP was revised down to -1.0% by the Bureau of Economic Analysis. The BEA’s second Q1 GDP estimate attributed the poorest economic quarter in three years largely to 1.6% slips in business investment and business stockpiles, plus a 6% in exports – that is, not necessarily winter weather.2,3
Consumer spending had retreated 0.1% in April, even with consumer incomes up 0.3% for that month. That news from the Commerce Department came 24 hours after Q1 GDP was revised down to -1.0% by the Bureau of Economic Analysis. The BEA’s second Q1 GDP estimate attributed the poorest economic quarter in three years largely to 1.6% slips in business investment and business stockpiles, plus a 6% in exports – that is, not necessarily winter weather.2,3
Consumer
confidence? It was difficult to get a bead on it in May, as the two most
respected polls told different stories. The Conference Board’s survey came in
at 83.0, a gain of 1.3 points. The University of Michigan’s index fell 2.2
points to 81.9, with decreases in its monthly gauges of present and future expectations.4
Consumer
prices were rising appreciably – in fact, a 0.3% April rise in the Consumer
Price Index took yearly consumer inflation up to 2.0%. (The Producer Price Index
advanced 0.6% in that month, putting yearly wholesale inflation at 2.1%.)5
The
picture was brighter when it came to manufacturing and hiring. Though the
nation’s industrial production was down 0.6% in April, overall durable goods
orders were up 0.8%. U.S. firms created 288,000 new jobs as the unemployment
rate declined to 6.3% (although the rate of unemployed and underemployed
Americans was 12.3%). May brought a half-percent advance in the Institute for
Supply Management’s factory PMI, which rose to 55.4; in April, ISM’s
non-manufacturing PMI improved to 55.0 in April from March’s reading of 54.2.5,6,7
GLOBAL ECONOMIC HEALTH
Was Abenomics finally ridding Japan of its deflation problem? The latest data seemed encouraging. Prime Minister Shinzo Abe’s “three arrow” economic strategy began with a Bank of Japan commitment to double the nation’s monetary supply in two years; Q1 2014 had seen GDP of 5.9% (thanks to a promise to raise sales taxes by 3% in Q2) and core inflation of 3.2%. While the Bank of Japan wants to see 2% inflation soon, the International Monetary Fund doesn’t see that happening until 2017 or later and just cautioned the central bank against abandoning its stimulus too quickly.8
Was Abenomics finally ridding Japan of its deflation problem? The latest data seemed encouraging. Prime Minister Shinzo Abe’s “three arrow” economic strategy began with a Bank of Japan commitment to double the nation’s monetary supply in two years; Q1 2014 had seen GDP of 5.9% (thanks to a promise to raise sales taxes by 3% in Q2) and core inflation of 3.2%. While the Bank of Japan wants to see 2% inflation soon, the International Monetary Fund doesn’t see that happening until 2017 or later and just cautioned the central bank against abandoning its stimulus too quickly.8
China’s
latest official manufacturing PMI also brought good news, rising 0.4 points to
50.8 for May. This marked the third straight month of growth in factory
activity, reassuring seeing as the country’s annualized GDP had declined in the
first quarter to 7.4%.9
The European Union’s factory PMI slipped to 52.2
in May, down 1.2 points from April but still flashing a growth signal. The troubling news:
consumer inflation was running at just 0.6% in Germany in May, as opposed to
1.1% a month before. Consumer price indices had also shown declining inflation
in Italy, Belgium and Spain, which led analysts to believe that euro area
annualized consumer inflation would come in at but 0.5% in May.10
WORLD MARKETS
Few stock benchmarks lost ground in May. Russia’s RTS rebounded 12.12% and Spain’s IBEX rose 3.25%; elsewhere in Europe, the DAX rose 3.54%, the CAC 40 0.72% and the FTSE 100 0.95%, with Italy’s FTSE MIB down 0.71%. Further west, May gains came for the Merval (13.72%) and the IPC All-Share (1.60%) while the S&P/TSX Composite retreated 0.33%. In the east, May saw an 8.03% jump for India’s Sensex, a 2.29% gain for the Nikkei 225, a 4.28% climb for the Hang Seng, a rise of 2.85% for Pakistan’s KSE 100 and advances of 1.69% for the Kospi and 0.63% for the Shanghai Composite.1
Few stock benchmarks lost ground in May. Russia’s RTS rebounded 12.12% and Spain’s IBEX rose 3.25%; elsewhere in Europe, the DAX rose 3.54%, the CAC 40 0.72% and the FTSE 100 0.95%, with Italy’s FTSE MIB down 0.71%. Further west, May gains came for the Merval (13.72%) and the IPC All-Share (1.60%) while the S&P/TSX Composite retreated 0.33%. In the east, May saw an 8.03% jump for India’s Sensex, a 2.29% gain for the Nikkei 225, a 4.28% climb for the Hang Seng, a rise of 2.85% for Pakistan’s KSE 100 and advances of 1.69% for the Kospi and 0.63% for the Shanghai Composite.1
As for the regional and multinational
indices, the Europe Dow was the laggard with a loss of 0.23%. May advances came
for the Asia Dow (3.90%), Global Dow (1.67%), MSCI World Index (1.63%), MSCI
Emerging Markets Index (3.26%) and STOXX 600 (1.88%).1,11
COMMODITIES MARKETS
NYMEX crude climbed 3.25% for the month to
settle at $102.71 on May 30. Other energy futures retreated: unleaded gasoline
lost 0.96%, heating oil 1.59% and natural gas 5.01%. Losses also came to the
farm: soybeans slipped 2.21%, cotton 8.58%, corn 9.24%, wheat 11.78% and coffee
13.98%. A couple of key crops advanced for May: sugar went +0.81%, cocoa
+2.62%.12
Gold and silver futures both lost some
ground in May. Gold’s 3.23% descent led to a May 30 COMEX close of $1,245.60;
silver ended the month at $18.68, losing 2.04%. Copper gained 4.22% for May
while platinum advanced 1.83%. As for the U.S. Dollar Index, it rose 1.13% for
May.12,13
REAL ESTATE
Both new and existing home sales improved in April. The Commerce Department recorded a 6.4% rise in purchases of new homes, while the National Association of Realtors announced a 1.3% gain in residential resales. NAR also said that pending home sales were up for a second straight month in April, rising 0.4%.2,14
Both new and existing home sales improved in April. The Commerce Department recorded a 6.4% rise in purchases of new homes, while the National Association of Realtors announced a 1.3% gain in residential resales. NAR also said that pending home sales were up for a second straight month in April, rising 0.4%.2,14
April also brought more groundbreaking. Housing
starts rose 13.2%, powered by a gain of almost 40% in the apartment category.
Building permits were up 8.0%, again in large part due to multifamily projects
getting off the drawing board.15
While the monthly numbers were solid, the year-over-year
numbers were less impressive. Annually, new home sales were down 4.2% as of
April; the pace of existing home sales had declined 6.8%, with the seasonally
adjusted annual rate projecting to 4.65 million sales (compare that with 5.5
million in a healthy market). Existing home sale prices did rise 5.2% in a year
to $201,700; the S&P/Case-Shiller home price index saw its overall annual
gain slip from 12.9% in February to 12.4% in March.2,14
Where did mortgage rates stand at the end of
May? We turn
to Freddie Mac’s Primary Mortgage Market Survey, specifically the May 1 and May
29 editions. On May 29, the average rate on a 30-year FRM was only 4.12%. The
average interest on the 15-year FRMs was but 3.21%. Rates on 5/1-year ARMs
averaged 2.96%, rates for 1-year ARMs 2.41%. Compare the May 1 numbers: 30-year
FRMs, 4.29%; 15-year FRMs, 3.38%; 5/1-year ARMs, 3.05%; 1-year ARMs, 2.45%.16
LOOKING BACK…LOOKING FORWARD
More buying than selling, and not much fear – that is the simple summation of May on Wall Street. The CBOE VIX ended the month at a low, low 11.40, plunging 14.99%.1
More buying than selling, and not much fear – that is the simple summation of May on Wall Street. The CBOE VIX ended the month at a low, low 11.40, plunging 14.99%.1
In
addition to the Dow’s aforementioned gain, the three other closely watched U.S.
indices also advanced for the month – the NASDAQ rose 3.11% to 4,242.62, the
S&P 500 2.10% to 1,923.57 and the Russell 2000 0.68% to 1,134.50. At the
end of the month, the S&P appeared on pace for a pretty good year.1
UPCOMING ECONOMIC
RELEASES: Coming up in June, we have:
the May ISM services
PMI and a new Federal Reserve Beige Book (6/4), the May Challenger job cuts
report (6/5), the Labor Department’s May employment report (6/6), April wholesale inventories (6/10), April business inventories and May retail
sales (6/12), the University of Michigan’s initial June consumer sentiment
index and the May PPI (6/13), May industrial output (6/16), May’s CPI plus May
housing starts and building permits (6/17), a Fed policy statement (6/18), the Conference
Board’s May leading indicator index (6/19), May existing home sales (6/23), May
new home sales, the Conference Board’s June consumer confidence index and April’s
FHFA and Case-Shiller home price indices (6/24), May durable goods orders and the
final Q2 GDP estimate from the Bureau of Economic Analysis (6/25), May consumer
spending (6/26), the University of Michigan’s final June consumer sentiment
index (6/27), and May pending home sales (6/30).
To Your Prosperity,
Kevin Kroskey, CFP®, MBA
This article adapted with permission from MarketingLibrary.net.Citations.
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