Please find this month’s market updates below. This list is intentionally brief and uses ETFs that are readily available to all investors to represent the major markets. In the second section, there are five simple portfolio mixes, which are described by low-cost Vanguard ETFs. These can be used as a guide against which to compare your portfolio mix. We hope these few, but important, data points are of value to you.
– The AdvicePeriod Team
Monthly Market Review
By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer
The stock market eked out a small gain in May, as investors overcame inflation jitters to push the S&P 500 index to its fourth straight monthly advance.1 Early in the month, the S&P fell 4%, partly in response to a report that consumer inflation in April jumped 4.2% on an annualized basis — the biggest increase since 2008. But by the end of the month, the index had recovered to finish up 0.6% as investors focused on positive economic and earnings news.2
The total U.S. stock market (VTI) rose 0.46% in May. International equities (VEA) were up 3.58%, and emerging market equities (VWO) gained 1.70%. Bonds were up as well, as the total U.S. bond market (BND) rose 0.15% for the month, while municipal bonds (MUB) advanced by 0.35%.
Strong earnings have boosted confidence in stocks: Companies finished reporting first-quarter earnings during May, and those earnings were, on average, substantially better than expected.
Inflation concerns aside, the economic data for May were mostly positive. The U.S. added 559,000 jobs — a solid result even if it fell short of projections for 675,000 new jobs. The unemployment rate declined to 5.8% from April’s 6.1%. Many of those new jobs occurred in the leisure and hospitality industries, signaling that Americans, 51% of whom now have at least one vaccine shot and 42% of whom are fully vaccinated, are getting on with their lives.3
The Federal Reserve Bank of Atlanta now projects that U.S. economic growth will hit 10.4% in the second quarter. If that’s the case, U.S. gross domestic product, a measure of the economy’s total output of goods and services, will reach its pre-pandemic level by the end of June.4
Early in the year, interest rates spiked, sending a shudder through the stock market. (Rising interest rates can cause selloffs in stocks by increasing bonds’ attractiveness.) But rates have moderated since then, and in March, the yield on the benchmark 10-year Treasury bond declined for the first time this year, dropping to 1.58% from 1.63%.5 Interest rates may hover in that range for a time as the markets await more data about the jobs market, wage growth, and price inflation.
We can never predict the direction of interest rates, inflation, and the markets themselves with certainty. But risk and reward are two sides of a coin. The investments generally considered the safest, U.S. Treasuries, produce very little return; a risky stock can rise – or fall – more sharply. One key to help grow your wealth in the capital markets is to create a mix of investments sufficient to help you achieve your goals while mitigating risk.
Please don’t hesitate to contact your AdvicePeriod advisor if you’d like to discuss your investment portfolio or any other aspect of your financial life.
Major Market Index Returns Period Ending 6/1/2021 (Annualized)
Selections include ETFs generally available to consumers. Returns are annualized and net of management fees but do not include trading and advisory fees. Return source: Morningstar. AP Disclosure
Sample Portfolio Mix Returns (Annualized)
Global portfolio mixes are Stocks/Bonds and are represented by VT/BND; returns are annualized. Vanguard funds are a net of all management fees but do not include trading and advisory fees. Return source: Morningstar. AP Disclosure
What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks
Trailing 10 Years Numbers As of December 31st, 2020 – S&P Spiva Scorecard
Percentage of US large-cap funds that underperformed their benchmarks
US large-cap benchmark:
Percentage of international funds that underperformed their benchmarks
S&P International 700
Percentage of emerging market funds that underperformed their benchmarks
Emerging Markets benchmark:
The SPIVA Scorecard is a robust, widely-referenced research piece conducted and published by S&P DJI that compares actively managed funds against their appropriate benchmarks on a semiannual basis.
1. S&P 500 Monthly Returns, YCharts.com
2. Lucia Mutikana, ‘Pent-up demand, shortages fuel U.S inflation’, Reuters.com
3. ‘See How Vaccinations Are Going in Your County and State’, nytimes.com
4. Ben Winck, ‘US GDP will exceed its pre-pandemic peak by the end of June, Atlanta Fed model says’, businessinsider.com
5. ’10 Year Treasury Rate by Month’, multpl.com