Another Monthly Gain for the S&P 500; Bonds Fall

in Market Commentary by

Market Digest – Week Ending 5/31 

A Friday afternoon selloff pushed US stocks into negative territory for the week but was not enough to spoil a 7th consecutive monthly gain for the S&P 500. Foreign stocks again fared worse. It was a slow news week. The Friday afternoon drop was attributed to technical trading around month-end and a rebalance of the MSCI indexes. Bonds fell this again week as Bernanke’s comments last Wednesday about stimulus reduction continued to sink in. Interest rate sensitive REITs fell over 6%.

Weekly Returns:

S&P 500: 1,631 (-1.2%)
MSCI ACWI ex-US: (-2.3%)
US 10 Year Treasury Yield: 2.13% (+0.12%)
Gold: $1,387 (+0.0%)
USD/EUR: $1.299 (+0.5%)

Major Events:

  • Wednesday – Chinese meat producer Shuanghui agreed to buy Smithfield Foods for $4.7 billion, in what would be the largest takeover of a U.S. company by a Chinese buyer if approved.
  • Wednesday – MidAmerican Energy Holdings purchased NV Energy for $5.6 billion.
  • Thursday – Q1 US GDP was revised down to 2.4%, from an initial 2.5% estimate.
  • Friday –Dell filed proxy materials to move forward with an acquisition by founder Michael Dell and Silver Lake Partners.
  • Friday – Japan suspended wheat imports from the U.S., where the government discovered an unapproved, genetically modified strain growing in an Oregon field.

Our Take:

May marked the 7th consecutive gain for the S&P 500, but not all asset classes are joining the party. Most bonds are now at a loss for the year, as are Emerging Markets stocks. Commodities and gold are down meaningfully. Foreign developed market stocks are up just a few percent.

Investors are growing increasingly wary of bonds and frustrated with the problems in Europe and the volatility of Japan. US stocks have been the beneficiary. For the last few weeks, they have generally led on both up and down days. As a result, those owning globally diversified multi asset class portfolios may not feel properly compensated for the risk they are taking.

As has always been the case in capital markets, this type of trend typically evolves into self-fulfilling prophecy which accelerates before eventually collapsing on itself, often sharply. Multi-asset class diversification feels great when it helps, but can be disappointing when US stocks are outperforming. Don’t get too caught up in the short term or in trying to time these types of intermediate term trends – it’s counterproductive. US stocks should be a big part of all portfolios, and the biggest part of most. But over a full market cycle, the diversified approach tends to be much more satisfying. Over multiple market cycles it always is.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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