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The US stock markets had a roller-coaster ride during the month of May, as the month began with a rally after strong first quarter earnings were reports, trade war concerns subsided, emerging markets calmed, and political instability in Europe was shrugged off. Trade war concerns re-emerged late in the month curtailing gains.  Washington is trying to gain concessions to reduce the trade deficit. The possibility of political turmoil in Italy also negatively impacted the markets.

All of the major US stock indices had positive returns for the month of May. The S&P 500 rose 2.4%, the Dow Jones Industrial average gained about 1.4%, the NASDAQ posted a 5.68% gain, and Russell 2000 was up 6.07%. The Russell 2000 hit multiple record highs last month, largely due to strong earnings and tax cuts. Furthermore, small cap stocks are impacted less from trade tariffs, as they have less international exposure.

For the month, Consumer Staples (-1.57%), Utilities (-1.11%), and Financials (-.98%) were the only sectors in the red. Consumer Staples were negatively impacted by the proposed tariffs on items provided by Mexico. Technology was the best-performing sector, rising 6.78%. It was followed by Industrials 3.07% gain, and Energy’s 2.99% rise. Technology shares rose after Apple and Facebook announced plans for stock buybacks. Industrials may face increased pressure from steel and aluminum tariffs.

Oil prices fell during the month, with West Texas Intermediate crude settling at $68.47 a barrel, losing 2.2%. The fall was due to rising US production and the possibility that OPEC and its allies may boost output. As usual, the fall in crude prices has yet to affect gasoline prices, as anyone who has filled their tank recently can confirm. The national average price for regular gasoline is $2.96, compared to $2.38 a year ago, raising costs for summer travelers.

The yield on the 10-year fell 11.2 basis points during the month after diminished rate hike expectations and a bit of a flight to safety in government bonds. The yield was as high as 3.1% earlier in the month. 30-year fixed-rate mortgage rates fell 10 basis points during the last week of the month, to an average of 4.56%, providing some relief for home-buyers.

Economic indicators showed positive results. The Chicago PMI gained 5.1 points to 62.7, the highest reading since January. Any reading above 50 indicates improving conditions. Consumer confidence increased in May to 128, up from a revised 125.6 in April. The unemployment rate dropped to 3.8%, after stubbornly remaining at 4.1 for the prior 6 months. The unemployment rate is at the lowest reading since April 2000. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in April on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.5 percent. On the whole, these numbers reflect a healthy economy and support further interest rate increases.

The question now is will the markets continue to grow, or will we face a “June swoon”. There are clearly many positive indicators for the markets and the economy, but trade tariffs, interest rates, and geopolitical concerns are a recipe for further volatility. As always, we maintain that a properly allocated portfolio based on one’s risk profile and a long-term investment horizon are the pillars to achieving investment goals.