May Market Performance
May was a somewhat sideways month for the U.S. markets despite some volatility during the middle of the month, driven by a weak jobs number on May 7th and a very high CPI (Consumer Price Index) data release on May 12th. This inflationary data showed inflation increasing at a higher than expected rate. However, the U.S. stock market indices took the employment and inflationary data mostly in stride. For May, the S&P 500 added 0.02%, the Dow 30 tacked on over 1.86%, and the tech-heavy Nasdaq shed 1.69%.
Inflation Spikes in May
May’s Consumer Price reading surged far beyond market expectations, resulting in a 13-year high measurement. Here in the U.S., you can probably “feel” the inflation. From bread to gasoline to market rents, prices have increased notably across the board. And since higher inflation means that it could take more dollars to purchase a widget, this could bode well for U.S. equities. Along the same vein, as it could take more dollars to purchase a stock, this could theoretically lend support to higher equity prices. Just some food for thought.
June Market Data and Sector Rotation
Last month, we monitored the sector rotation that seemed to be occurring in the marketplace. It seems we were onto something, as the defensive sectors and Dow 30 stocks had positive gains in May and the other major indices lagged.
While this flight to lower risk and dividend-paying stocks was the theme throughout May, will it continue? June through October tends to be an opportunity for buyers given the historical tendency for softer performance. Heading into June, traders and fund managers are eagerly awaiting the upcoming employment report data slated for release on Friday, June 4th. This data release–the “Non-Farm Employment Change”–is a big one, and expectations are for an increase of 650K-670K jobs in May. Do you think the data will miss or beat expectations?
Following the employment data, attention will turn to the Fed meeting June 15 & 16. We’ll keep an eye out for any clues about monetary policy and interest rates.
Russell 2000 Index (Small-Caps)
Every year, the Russell equity indices (small-caps) are reconstituted to ensure market changes that have occurred in the preceding year are captured. The most widely followed Russell Index is the Russell 2000, which tracks the smallest 2,000 stocks in the Russell 3000 Index. This reconstitution changes the stocks that comprise the index, resulting in a newly reconstituted index on June 28th.
During this reconstitution, underperforming stocks are removed from the index and new stocks are added. This can create opportunities for investors that have suitability that allows for small-caps. Check out this article that provides technical analysis about the Russell 2000 Reconstitution here.
What Next?
While there is no crystal ball, it is beneficial to keep a pulse on the message of the markets on a monthly, weekly, and even daily basis. In a market like this, it may be wise to be on the lookout for any meaningful pullbacks to find long-term opportunities at lower prices. Given the seasonal tendency for a softer period from June through October, it could be a wise time to discuss your portfolio to plan for any opportunities that may arise.
With that in mind, how is your situation–and has it changed? Have any events happened in your life that could result in making any adjustments? Let me know!
There are numerous ways to take advantage of market seasonality, sector rotation, index reconstitution, and a higher inflationary environment. Please don’t hesitate to reach out; I am always here when you need me.
This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Trademark Capital’s investment strategies are built using quantitative, proprietary algorithms that are designed to identify and react to changing market conditions. However, investors should be aware that no investment strategy or risk management technique can guarantee returns or eliminate risk in any given market environment. As with all investments, Trademark Capital Management’s investment strategies are subject to risk and may lose money. The investment strategies presented are not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Due to our active risk management, our managed portfolios may underperform during bull markets. Past performance is no guarantee of future results.
