Market Commentary
The S&P 500 finished the month of May up .59% finishing the month within 1% of its all time high. This brings the S&P 500's year to date return to 11.93%. Although the month eked out a small gain, the trend for May was relatively sideways.
The battle between growth and value investments continued in May with value once again leading the charge. Value is primarily comprised of energy and finance stock based holdings. Energy was up 5.71% for the month and finance was up 4.77%. Contrast that with most growth funds that are primarily comprised of stocks within the technology sector. Tech was down .9% for the month. Bonds continue to be a drag on diversified portfolios (as do some stock sectors) with almost all bond sectors down for the year, with treasuries down double digits for the year.
Bonds prices primarily move in inverse relation to government bond rates. Rates peaked in late March and have been relatively flat since. Although rates have been flat and stable recently, most of the data I pay for indicates a good chance of rates rising as additional inflationary data gets priced in as we move into summer. US employment increases (unemployment decreases) will likely add to bond rates going up this summer as many states end their extra unemployment payment in conjunction with rent moratoriums ending this month. The US Dollar had been somewhat strengthening this year but that trend was reversed in May with the value of the dollar declining in comparison to other world currencies. Past results do not guarantee future performance, but over the last year the value of the Dollar declining and interest rates rising has created favorable market conditions for stocks to rise.
The crypto markets saw a very large decrease in value in the month of May reminding everyone just how quickly volatility can spike within this space. This doesn't mean that there isn't long term potential within crypto but I think it is still more of a trade than investment play. This just means I believe the timing of buys and sells is a bigger factor than with traditional investment vehicles. As clients question me about crypto (which happens every week) I continue to discuss just how important sizing of position is. If you are trading in this space don't size your trades so large that downward price movement is capable of inciting the panic emotion within you. Also, just like with other investments, don't chase. Patience in conjunction with a risk management process is an important factor in all investing and I believe even more important in this space. At this time I am not trading crypto within client accounts. Perhaps in the future, but only if the data supports it.
The housing market continues to be red hot, and for sure a sellers market. However, we may be beginning to see signs of market exhaustion as prices continue to rise while inventory falls to historic lows. According to the Federal Housing Finance Agency, home prices rose 14% year over year, which is the largest increase going back to 1991. While inventory is down 37% from 2020 and 49% from 2019.
Regardless of how the government acknowledges inflation, prices of just about everything continue to increase this year. I've been talking about inflation and potential for inflation within my newsletters pretty well every month going back to last June. I still think this is going to continue to be a headwind for investors and consumers of goods and services (which is all of us), as I don't believe that price increases have peaked for the year. So when you are evaluating your cash and investment holdings it is important to incorporate an inflationary figure in your decisions in how you deploy your capital. Although with holding a large amount of cash or CDs you won't see your value go down on your statement, you have to understand that the purchasing power of the US Dollar floats and this year that float is carrying the purchasing value of cash down stream.
Blessings to you all and your families as we head into summer.
Shawn M. Wyatt, CFP®, CRPC®
Seth M. Surface
StockCharts.com 5.28.2021
The views and opinions expressed are that of the author and do not necessarily represent the opinion of any broker dealer. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal.