12 Jun Monthly Market Monitor – May 2017
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Global Capital Markets
- Global capital markets returns were generally positive once again in May as global stocks, bonds and real estate posted modestly positive returns while commodity returns were slightly negative once more.
- Over the last three months and one year, global stocks were the top performers among the major asset classes by a noticeable margin.
- As displayed below, hypothetical portfolio mixes with larger allocations to stocks, which are generally considered riskier, outperformed more conservative mixes over the last one, three, and 12 months.
US Stock Markets
- The broad US equity market was modestly positive in May, finishing the month up approximately 1%; US stocks are now up 8% year to date and nearly 18% over the last year.
- Large caps continued their trend of outperformance relative small caps in May and have outperformed small caps by 7% year to date.
- Value trailed growth over the last one and three months across the capitalization spectrum.
- Over the last year, the size premia was modestly positive; meantime, the value premia was mixed with value trailing growth among large caps but outperforming among small caps.
Non-US Stock Markets
- In US dollar terms, non-US stock markets outperformed US markets in May and over the last three and 12 months.
- Performance in developed and emerging markets has been similar over the last one and three months; emerging markets noticeably outperformed over the last year, however.
- Foreign small and large caps performed similarly over the last one, three and 12 months.
- The value premia has been negative in foreign stocks over the last one and three months; however, it’s positive over the last year.
US Treasury Yield Curve
- The US Treasury yield curve, which charts interest rates on US Treasury bonds with different maturity dates, modestly flattened but was largely unchanged yet again in May and over the last three months as rates at the short end of the curve increased slightly inline with Fed monetary policy while longer-term rates incrementally declined.
- Over the last year, the curve shifted upward as rates across the curve increased by 20 to 65 basis points amid the global “reflation trade”.
Fixed Income
- As a reminder, the primary driver of returns on high-quality, investment-grade bonds is changes in interest rates which are inversely related to bond prices (i.e., when rates go up, bond prices go down and vice versa).
- Investment grade taxable US and non-US bonds (USD-hedged) posted slight gains in May and over the last three months.
- For the one- and three-month periods, long-term bonds outperformed short-term bonds owing to the flattening yield curve.
- Investment-grade and high-yield credit bonds outperformed US Treasury bonds over the last one, three and 12 months.
- US Treasury Inflation Protected Securities (TIPS) modestly lagged nominal Treasury bonds in May as well as for the trailing three-month period owing tightening break-even inflation spreads.
We hope you found this market monitor update valuable. Please reach out to us with any questions you have or if you’d like to discuss working together,
Kathmere Capital Management
IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.
Stock Investment Risk
Stock investing may involve risk including loss of principal.Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
Bond Investment Risk
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.
Alternative Investments Risk
Alternative strategies may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments.