Monthly Economic Update May 2011
Economic pressures and diminished growth were evident throughout the month of May. The labor market weakened with initial jobless claims rising substantially. Fridayâ€™s payroll report will likely be disappointing. Growth in the service and manufacturing sectors remained positive, but each dropped from higher levels earlier in the year (see graph on next page). Improvement in industrial production and capacity utilization has been harder to achieve this year with both indices falling in April for the second time in three months. These facts, combined with elevated food and energy prices and a new leg down in the real estate market, drove a sharp drop in consumer confidence this month.
The capital markets were not immune to weaker economic fundamentals. Risk assets such as stocks and commodities pulled back during the month while bonds performed fairly well. Following month-end, both trends continued with stocks continuing to drop and the 10-year U.S. Treasury yield falling below 3.0% for the first time since the fourth quarter of last year.
Key issues to watch over the coming month include movement on the U.S. government debt ceiling, European sovereign debt issues and related bank stress test results, continued global policy tightening (both fiscal and monetary), Middle East tensions, and developments on the inflation front. As for the last issue, we point out that the TIPS market is strongly aligned with the Federal Reserveâ€™s expectation that current inflationary pressures are transitory.
Mayâ€™s Economic Releases
The S&P 500 index lost 1.1% for the month and is now up 7.8% for the year. Internationally, the MSCI EAFE Developed Markets index dropped 3.0% in May while the corresponding Emerging Markets index gave up 2.6% for the period. Year-to-date, international developed and emerging markets have gained 6.3% and 2.5%, respectively. Dollar weakness has materially enhanced international investment returns so far this year.
In the fixed income market, the Barclays U.S. Aggregate index was up 1.3% for the month and the 10-year U.S. Treasury bond ended with a yield of 3.05%, down approximately 25 bps for the month and the year. Year-to-date, the Barclays U.S. Aggregate has gained 3.0%. Commodities, particularly challenged this month, gave up 5.1% while publicly traded REITs continued their climb with a May gain of 1.0%.
This market commentary was produced by Summit Financial Resources, Inc., 4 Campus Drive, Parsippany, NJ 07054. Tel: 973-285-3600, Fax: 973-285-3666. Source of performance: MorningstarÂ®. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poorâ€™s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The MSCI EAFE and Emerging Markets Indexes were created by Morgan Stanley Capital International (MSCI) and designed to measure equity market performance in global developed and emerging markets, respectively. The Barclays Aggregate Bond Index is a market capitalization-weighted index comprised of government securities, mortgagebacked securities, asset-backed securities, corporate securities, and a small number of foreign bonds traded in the U.S. It is used to represent the universe of bonds in the domestic market. REITs, Real Estate Investment Trusts, are securities that invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, however, have liquidity constraints. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. To unsubscribe from this investment newsletter please reply to this email with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision. with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision.