Monthly Market Monitor - May 2014 Recap

Market Indices1MayYear-to-Date
S&P 5002.35%4.97%
Russell 30002.18%4.32%
MSCI EAFE1.62%3.78%
MSCI Emerging Markets3.49%3.39%
Barclays US Aggregate Bond1.14%3.87%
Barclays Municipal1.29%5.91%
Barclays US Corporate High Yield0.92%4.59%

  • Global stocks extended gains in May, as investors' prior month reservations abated.
  • Russian troops pulled back from its border with Ukraine, easing tensions.
  • Stocks generally outperformed bonds, except YTD municipal bonds, outpacing stocks by nearly 1%.

Equities rose for a fourth straight month as prospects for a pickup in U.S. economic growth, together with improving corporate earnings, helped propel stocks to new heights in May. The S&P 500 rose the most since February and along with the Dow Industrials, finished at a new all-time high. The S&P 500 has rebounded nearly 6% since a selloff in biotech and internet stocks drove the benchmark index to a two-month low in mid-April. Wall Street largely ignored the second of three government estimates showing the economy sputtered during the first quarter (-1% GDP), its first quarterly pullback in three years. Yet the Federal Reserve acknowledged that the economy has strengthened after harsh winter weather undermined consumer spending and manufacturing activity. An apparent ease in the Ukraine crisis and an accelerated pace of M&A activity also contributed to bullish sentiment.

Small-cap stocks continued to underperform large-caps as the Russell 2000, a proxy for small-cap equities, rose 0.8% in May, trimming its 2014 loss to 2%. Mid-cap stocks, as measured by the Russell Mid Cap Index, rose 2.2% last month, rebounding from a 0.6% April loss, and lifting its YTD gain to 5.2%. Growth resumed its leadership over value last month as the Russell 1000 Growth Index gained 3.1%, while the Russell 1000 Value Index gained just 1.5%. On a YTD basis, the Russell 1000 Value Index is up 5.5%, while the Russell 1000 Growth Index is up 4.3%.

All but one of the ten major sector groups ended higher in May, led by Technology (+3.8%), Telecom (+3.4%) and Materials (+3%). Financials (+1.4%) gained the least, while Utilities (-1.1%) lagged. Utilities however, the only sector to retrace its steps last month, continues to be this year's top performer, up 13.6%. Healthcare (+8.2%) and Energy (+7.5%) are the next best performers so far in 2014.

Overseas developed markets underperformed the U.S. in May as the MSCI EAFE Index gained just 1.6%. For 2014, this index continues to lag U.S. equities. Emerging markets, as measured by the MSCI Emerging Markets Index, outperformed the U.S. last month by over 1%, rising 3.5% in May.

Bonds also rallied last month. Treasuries, as measured by the Barclays U.S. Government Bond Index, gained 0.9%, the most since January, and are up 2.8% YTD. Demand for 10-year Treasuries has pushed its yield down to 2.459%, off the most since January. U.S. investment grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, returned 1.1% last month, extending YTD gains to 3.9%. The Barclays U.S. Corporate High Yield Index, a proxy for non-investment grade corporate bonds, returned 0.9% in May, extending YTD returns to 4.6%. Municipal Bonds, as measured by the Barclays Municipal Bond Index, gained 1.3% last month, extending 2014 gains to 5.9%.

  1. Morningstar Direct (all performance percentages are total return based, which include reinvested dividend, interest)

This information is compiled by Cetera Investment Management.

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