- May was a mixed month for the major market indexes
- Financials, Energy, Industrials and Materials performed the best.
- Technology, Consumer Discretionary and Utilities were the biggest laggards.
- Inflation has continued to be the biggest market concern.
- However, bond yields actually fell during the month as the Fed reiterated its accommodative stance despite the recent rise in prices.
- All major commodities; oil, natural gas, and gold were up over 6% in May.
Why It Could Keep Going Higher
- There are still 8 million Americans that remain unemployed.
- Consumers have loads of excess savings to spend.
- Business have a lot of inventory to build back up.
- Continued vaccine rollout.
- Additional stimulus.
- The Consumer Price Index (CPI) increased again in April.
- The Producer Price Index (PPI) increased more than expected in April.
- The U.S. unemployment rate continued to improve.
- The Fed maintained their optimistic outlook yet remain very accommodative in their monetary policy.
- Retail sales improved further in April.
What We Are Doing
We have continued to maintain a well-diversified allocation, yet overweighting equities and underweighting bonds. We’re still investing in areas that should benefit from the world returning to normal, as well as potentially higher interest rates, such as industrials, banks and value. However, we believe longer term trends will continue to favor technology that we added to during their recent sell off.
We are beginning to consider reversing our underweight to developed international equity as we believe their outlook is improving. With interest rates anticipated to rise over the next couple of years, we plan to maintain our underweight to investment grade fixed income and overweight to high yield. Going forward we continue to favor high yield, preferred stocks, private debt and private real estate as a way to create income.