Commentaries

PMC Weekly Review - June 3, 2016

A Macro View – May Monthly Recap

Domestic equity markets were mostly higher in May, with modest gains in most broad market indices. Investors continued to be focused on the potential that the Federal Open Market Committee (FOMC) will raise interest rates at its June meeting. Members of the FOMC talked up the possibility of a rate rise, indicating that the market had been assigning a low probability to that outcome. In addition, economic data continued to be unremarkable in the U.S. and remained lackluster in other parts of the world. The domestic political situation, although becoming clearer, remains extremely fluid. However, it is likely investors have yet to discount a November winner. Stock prices have rebounded sharply from their mid-February lows, but have failed to make a new high in over a year. The May employment report, released today, was very weak, as employers added a mere 38,000 jobs during the month, far below consensus expectations of 160,000. The employment results reflect recent trends in domestic economic data, which has showed signs of slowing. The latest estimate of first quarter real gross domestic product (GDP) came in at +0.8%, slightly below the +0.9% consensus forecast, but above the previous estimate of +0.5%.

Against this backdrop, broad market indices were modestly higher. The S&P 500 rose by +1.8%, and is now up +3.6% year-to date. The Dow Jones Industrial Average (DJIA) also climbed, posting a gain of 0.5%. The tech-heavy Nasdaq Composite Index jumped +3.8%, but remains slightly in the red for the year. The Russell 2000 Index of small cap stocks outpaced the Russell 1000 Index of large cap stocks, continuing their strong relative performance. Value stocks underperformed growth stocks. In terms of sector performance, the top performers were information technology, health care, and financials, with returns of +5.6%, +2.2%, and +2.0%, respectively. Energy and industrials were the poorest performers, with returns of -0.6% and -0.5%, respectively. Commodities were slightly lower, easing -0.2%. REITs posted solid gains, rising by +2.0%.

International equity markets were mostly lower, in contrast with U.S. equity indices. The MSCI World ex-U.S. Index slumped by -1.1%. Emerging markets also suffered, with the MSCI Emerging Markets Index declining by -3.9%. The MSCI EAFE Index, which measures developed markets performance, fell -0.9%. Regionally, Europe and China generated the best relative performance, declining by -0.6% and -0.8%, respectively. Latin America and Eastern Europe were the poorest relative performers, dropping by -10.8% and -6.2%, respectively.

Fixed income markets were mixed, as investors attempted to forecast the timing of the FOMC’s next move. The yield curve continued to flatten, with foreign demand for 10-year notes suppressing yields, as speculation of a rate increase put upward pressure on short-term rates. For its part, the FOMC has indicated that it would like to raise rates sooner rather than later, although the futures-derived probability indicates a rate increase won’t occur in June. Within this environment, the 10-year U.S. Treasury yield ended the month at 1.83%, up one basis point from the 1.82% level of April 30. Performance of broadbased fixed-income indices was mostly lower, with the Barclays U.S. Aggregate Bond Index advancing a mere +0.03%. Global fixed income markets suffered steep losses, with the Barclays Global Aggregate ex-U.S. Index falling -2.4%. Intermediate-term corporate bonds were lower, as the Barclays U.S. Corporate 5-10 Year Index edged down by -0.09%. The Barclays U.S. Corporate High Yield Index jumped +0.6%. Municipals were also modestly higher, gaining +0.3%.

Download the full PDF

The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.

Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.

Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.

Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.

© 2016 Envestnet. All rights reserved.

Featuring

Brandon Thomas
Chief Investment Officer

Articles By This Author

Video: Insights on Impact Economic and Market Overview: Second Quarter 2017 PMC Weekly Review - April 7, 2017 Economic and Market Overview: First Quarter 2017 Diversification: An Expensive Lunch Recently, But Free Over Time PMC Weekly Review - February 3, 2017 Economic and Market Overview: Fourth Quarter 2016 PMC Weekly Review - December 2, 2016 Post-Election, Will Markets and Portfolios Emerge Winners or Losers? Webinar Replay: Post-Election Winners and Losers PMC Weekly Review - November 4, 2016 Money Market Reform: What Does it Mean for Investors? PMC Weekly Review - October 7, 2016 Economic and Market Overview: Third Quarter 2016 PMC Weekly Review - September 2, 2016 PMC Weekly Review - August 5, 2016 Economic and Market Overview: Second Quarter 2016 PMC Weekly Review - July 1, 2016 Managing Volatility—A Little Planning Goes a Long Way A Surprise Brexit Leaves the Markets in Uncertain Territory Once Again PMC Weekly Review - June 3, 2016 PMC Weekly Review - May 6, 2016 Economic and Market Overview: First Quarter 2016 PMC Weekly Review - April 1, 2016 The Value of Value PMC Weekly Review - March 4, 2016 PMC Weekly Review - February 5, 2016 PMC Weekly Review - January 8, 2016 Economic and Market Overview: Fourth Quarter 2015 PMC Weekly Review - December 4, 2015 PMC Weekly Review - November 6, 2015 Economic and Market Overview: Third Quarter 2015 PMC Weekly Review -October 2, 2015 Smart Thinking PMC Weekly Review - September 4, 2015 Turmoil in Global Markets: China’s Currency Devaluation PMC Weekly Review - July 31, 2015 PMC Weekly Review - July 10, 2015 Economic and Market Overview: Second Quarter 2015 PMC Weekly Review - June 26, 2015 PMC Weekly Review - June 5, 2015 PMC Weekly Review - May 1, 2015 PMC Weekly Review - April 10, 2015 Economic and Market Overview: First Quarter 2015 Video: The PMC Spotlight: Quantitative Portfolios: Factor-Enhanced Series PMC Weekly Review - March 6, 2015 PMC Weekly Review - February 6, 2015 PMC Weekly Review - January 16, 2015 Economic and Market Overview: Fourth Quarter 2014 PMC Market Commentary: January 2, 2015 PMC Market Commentary: December 5, 2014 PMC Market Commentary: November 21, 2014 PMC Market Commentary: November 7, 2014 PMC Market Commentary: October 24, 2014 Economic and Market Overview: Third Quarter 2014 PMC Market Commentary: October 3, 2014 PMC Market Commentary: September 5, 2014 PMC Market Commentary: August 29, 2014 PMC Market Commentary: August 1, 2014 PMC Market Commentary: July 18, 2014 PMC Market Commentary: July 11, 2014 Economic and Market Overview: Second Quarter 2014 PMC Market Commentary: June 20, 2014 PMC Market Commentary: June 6, 2014 PMC Market Commentary: May 30, 2014 PMC Market Commentary: May 2, 2014 PMC Market Commentary: April 4, 2014 Economic and Market Overview: First Quarter 2014 PMC Market Commentary: March 7, 2014 Tracking Error Primer A Guide to PMC Quantitative Portfolios New Choices for New Challenges – The Case for Liquid Alternatives