The two big news items last week were a strong U.S. jobs report and a political compromise in Italy that reduced the risk of a referendum on staying in the EU. Both are covered in the market fundamentals section below. In addition, the U.S. reversed its position and announced steel sanctions against many of its closest trading partners. The S&P 500 rose 0.5%. The MSCI ACWI dropped 0.1%, and the Bloomberg BarCap Aggregate Bond Index climbed 0.2%.
Key points for the week
- U.S. markets performed well in May.
- U.S. jobs numbers were stronger than expected, while inflation remains in check.
- Trade risks increased as allies were targeted with sanctions.
- Italy avoided a referendum on staying in the European Union.
The U.S. jobs report testifies to the overall strength in the economy. Employers created 223,000 jobs, surpassing expectations of 188,000. The unemployment rate dropped to 3.8%, and the report showed wages have climbed a healthy 2.7% over the last year. Black and Latino unemployment continues to reach record lows, and additional economic reports last week suggest those earning the lowest wages are seeing the highest percentage increases in earnings.
Italy’s economic recovery has been the opposite of the U.S.’s strong rebound. Its GDP per capita is below what it was in 1999, lagging even Greece. In response to the poor performance, Italian voters rewarded two antiestablishment parties in recent elections. While the parties come from opposite ends of the political spectrum, they were able to form a governing coalition.
Italy’s president vetoed the coalition because of concerns the proposed economic minister’s euro-skeptic view could endanger Italy’s membership in the common currency. The veto essentially collapsed the newly formed coalition and raised the risk of new elections that would become a referendum on the euro. Rather than run the risk of new elections, the coalition opted to rotate in a more acceptable economic minister. Our view remains that international stocks are attractive, but we continue to watch political risks carefully.
May was a very strong month for U.S. investors. The S&P 500 rose 2.1%, and the Aggregate Bond Index rose 0.7%. Turmoil in Europe and concerns over slowing growth pushed international stocks lower. The MSCI ACWI slid 0.2%. Small stocks performed particularly well, pushing the Russell 2000 Index, which tracks smaller companies, 5.9% higher. Strong U.S. economic performance and potential trade risks caused investors to bid up shares of smaller companies, which are affected less by trade than larger firms.
For the year, the S&P 500 is up 2.3% and the MSCI ACWI is down 0.1%. The Aggregate Bond Index is down 1.8% as concerns over higher rates have pushed prices of existing bonds lower.
Fun story of the week
A new mini-trend on Twitter is for bearded men to take selfies of their chins rather than looking at the camera. The modest innovation drew a number of similar photos and responses. For those of you who say social media is contributing negatively to the overall culture, you will find this article affirming.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.