Monthly Market Update - May 2016

The U.S. stock market pressed forward with the S&P 500 advancing 1.8% for the month. U.S. small stocks (Russell 2000) performed even better, up 2.3%. International large cap returns were less encouraging, with the index down 0.9%, and emerging markets dropping 3.7%. On the fixed income side U.S. bonds were relatively flat, but international bonds returned 0.9%. REITs gained 0.3% but commodities declined 0.2%. Both asset classes are leading all others year‐to‐date. Managed futures had a rough month, down 3.0%, but are still in positive territory year‐to‐date.


  • The second estimate of first quarter real GDP came in at 0.8%, slightly above the initial estimate of 0.5%. The deceleration in growth from the fourth quarter reflects decreases in personal consumption expenditures and nonresidential fixed investment.
  • The year‐over‐year inflation rate increased to 1.1%, primarily attributable to increases in the energy index.
  • The private sector added just 38,000 jobs in May, well below analyst forecasts. The unemployment rate dropped to 4.7% due to a falling labor force participation rate.


  • The S&P 500 Index returned 1.8% and U.S. large value stocks gained 1.7%. The information technology sector led the way with a 5.6% gain. U.S. small stocks closed the month up 2.3%.
  • International large stocks fell 0.9%. International small stocks gained 0.2%.
  • Emerging markets trimmed earlier gains after falling 3.7% for the month. Large declines in Brazil, South Africa, and Mexico detracted from the index.


  • The 10‐year U.S. Treasury yield ended the month relatively unchanged at 1.8%, resulting in flat domestic bond returns for the month.
  • International bonds gained 0.9% and TIPS fell 0.7%.


  • REITs gained 0.3% and managed futures fell 3.0%.
  • Commodities fell 0.2%. Significant declines in precious and industrial metals were offset by gains in energy.

The SPECTRE of Brexit: Will Brits Bond with EU?
The long anticipated referendum, which will decide Britain’s future with the European Union, is set to take place. On June 23rd, Britain will vote on whether or not it will break off its membership with the European Union.

A decision to exit would be unprecedented. While there are rules in place in the EU charter for the departure of a member country, no member has left since the EU was officially formed in 1993. The Bank of England is warning of a recession if voters decide to leave. Economic growth would slow as many trade deals would have to be renegotiated, which would take years to conclude. So why is this even being considered?

Britons have long weighed the cost of what they pay into the EU budget against the economic benefits and safety they receive. But dissatisfaction with Britain’s continued membership has recently been heightened by the growing threat of terrorism and the EU’s immigration policy. Many in Britain would like more control over their borders and a stricter immigration policy to protect against terrorist attacks. Public opinion in Britain favors an exit, but party officials are on the side of staying and market sentiment sides with an exit being less likely than it is likely.

An exit would have a more predictable effect on British stock and bond returns, which would likely underperform. But the impact on the broader market is less clear. Volatility could heighten as markets would weigh the impact of such news. But markets would likely rally around a vote to remain as the uncertainty surrounding the issue would fade and economic activity could continue uninterrupted. It will certainly be one of the most closely watched decisions in the coming month.

Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for Supply Management, JP Morgan, Morningstar Direct, Standard and Poor's, Wells Fargo, Yahoo! Finance, BofA Merrill Lynch,

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