The S&P 500® index rose for the first time in three weeks, climbing 1.2 percent. It was enough of a gain to pull the index to a modest gain of 0.5 percent for the month of May, the fourth straight month of gains for the index. For the week, it was the growthier sectors of the index that led the way, including Consumer Discretionary, Communication Services, and Real Estate. Defensive groups trailed, with Utilities, Healthcare, and Consumer Staples each posting losses. The Russel 1000 Growth index posted a gain of 1.6 percent, outperforming the 0.9 percent gain by its value counterpart. 

For the full month it was a different story, however. The 1000 Value index gained 2.1 percent versus a 1.5 percent decline in the growth index, in a turnaround from April’s experience. The best performing sectors for the month were Energy, Materials, and Financials. The laggards were Consumer Discretionary, Utilities, and Technology. So far in the second quarter, the relative performance of growth versus value stocks is relatively even, with value enjoying a slight edge. But the market has rewarded both. On a year-to-date basis, however, the 1000 Value index enjoys a wide margin of outperformance, rising 17.4 percent versus the 5.8 percent gain in the 1000 Growth index. 

Eurozone Equites Rewarded Investors in May; Equities in Asia Struggled 
For dollar-based investors, Eurozone equities were particularly rewarding in May. The EuroStoxx 50 index climbed 3.9 percent in dollars, as optimism rose regarding Europe’s economic reopening. The index is now higher on the year by 14.4 percent in dollars, ahead of the 11.9 percent gain of the S&P 500. The Eurozone composite flash PMI in May rose to its highest reading since early 2018, confidence measures have followed suit, and economic forecasts are being revised higher, after the region fell into recession in the first quarter. In contrast, equity markets in Asia struggled in May, as the coronavirus remains virulent in a number of countries. The MSCI Asia ex-Japan index suffered a fractional loss for the month. Japan’s Nikkei index managed a gain of 0.7 percent in May in dollar terms but is lower on the year by 0.1 percent. 

Inflationary Pressure Leads Many to Believe the Fed May Change Course  

Despite ongoing concern over evidence of building inflationary pressure, bond yields remained unfazed. The yield on the ten-year Treasury note actually fell three basis points for both the week and the month, having ended April at a yield of 1.62 percent and ended May at 1.59. The core PCE deflator for April rose more than expected, bringing the year-over-year increase to 3.1 percent, up from a revised 1.9 percent in March. Fed officials have been consistent in their belief that such rising price pressure will prove to be temporary. There has nevertheless been an increase recently in the acknowledgement among Fed officials that discussions regarding the tapering of its bond buying program will likely need to commence soon. A number of observers have circled the Jackson Hole symposium in late August as possible timing for further clarity on this subject.   

Bitcoin, Dogecoin and GameStop Show Mixed Results in May

May was an uneven month for some of the more speculative investment alternatives. Bitcoin lost 35 percent of its value, but remains 27 percent higher since the start of the year. Dogecoin was fractionally lower in May, despite having been up by 110 percent after the first three trading days of the month. From the start of the year it remains higher by 650 percent, however. The IPOX SPAC index suffered a fractional loss, and is now lower on the year by 3.0 percent, after having been higher by 27 percent in mid-February. The stock of GameStop found some renewed interest, rising 28 percent, leaving it higher on the year by 1,068 percent. And the ARK Innovation ETF fell 7.2 percent, leaving it 10 percent lower on the year. By early February it had been up 26 percent. 

Investors Watching Negotiations in Washington

In Washington last week, Republicans submitted their revised infrastructure spending proposal totaling $928 billion. That represented a significant increase from their original $568 billion proposal. Coupled with President Biden’s revised $1.7 trillion offer, the two sides have closed the gap between them by almost $1 trillion. The sides remain far apart, however, especially in terms of how they propose to fund it all. The President had originally established the Memorial Day weekend as a deadline for negotiations, but in a rare display of bipartisanship negotiations will continue, for a while, but not indefinitely. Transportation Secretary Buttigieg said over the weekend that talks would continue for a matter of days, not weeks, or longer. 

All Eyes will be on The May Jobs Report and GDP this Week

Second quarter GDP growth forecasts anticipate what could be as much as 10 percent annualized growth, despite several recent disappointing economic releases, including the April jobs report, retail sales, housing starts, consumer sentiment, and personal income. This week’s economic calendar will help to determine whether April’s relative softness was an aberration. 

May job growth on Friday is expected to see the creation of 650,000 new non-farm jobs and a decline in the unemployment rate to 5.9 percent, after April’s anemic growth of 266,000 new jobs and surprising increase in unemployment to 6.1 percent. A decline in the unemployment rate below 6.0 percent would be the first since last March. Also, on the calendar are the May ISM PMI reports, which are expected to remain strong, echoing the strength of previously released Markit flash PMIs.

Important Disclosures:
Sources: Factset, Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.

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Investing involves risk including the risk of loss of principal.

The 10 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 10 years.

The flash reading of PMI is an estimate of the Manufacturing Purchasing Managers'
Index (PMI) for a country, based on about 85% to 90% of the total PMI survey responses each month. Its purpose is to provide an accurate advance indication of the final PMI data.

Personal consumption expenditures (PCE) measure consumer spending for a period of time.

Past performance is not a guarantee of future results.

An index is a statistical composite that is not managed. It is not possible to invest directly in an index. 

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