US Economy: Partly sunny.
While consumer confidence and labor market strength continue to indicate an expanding US economy, other data is painting a less rosy picture: Home prices rose in May at the slowest pace in 7 years; inflation expectations fell to the lowest level since mid-2017; and the manufacturing outlook dropped to levels not seen since 2016.
US Stocks: Evaporating gains.
US stocks did an about face as optimism over a resolution to the trade war waned, with both China and the US digging in their heels with new tariffs and the targeting of specific companies for retaliatory measures. US-focused and defensive sectors such as utilities (-0.8%) outperformed.
Foreign Stocks: EM struggle.
Relative to US equities, foreign stocks were mixed with developed markets well outperforming emerging markets (EM). China (-13.1%), owing to its vulnerability to an ongoing trade war with the US and signs of economic weakness that belie the official government estimates, drove the EM decline.
Fixed Income: Bond boost.
The yield on 10-year US Treasuries fell from 2.5% to roughly 2.2% as investors piled into government bonds in a flight to safety. Short-maturity Treasuries now yield more than longer-maturity issues, an “inversion,” which historically has preceded recessions, although not imminently.
Real Assets: Good diversifiers.
Real assets generally provided good diversification to portfolios in May, falling less than equity markets and with less volatility. Notably, a sharp upswing in oil inventories and sliding global demand left the price of Brent Crude oil around $64/barrel, off its year-to-date high.
Alternatives: Hedge funds mixed.
Hedge fund indexes fell less in May than the overall US equity market. As such, long-biased long-short equity funds underperformed their less-exposed, equity market-neutral cousins. Managed futures had trouble with the late-May commodity and equity market declines, which saw recent trends reverse.
Equities Total Return
|U.S. Large Cap||(6.4%)||10.7%||6.3%|
|U.S. Small Cap||(7.8%)||9.2%||(3.6%)|
Fixed Income Total Return
|U.S. Agg. Bond||1.8%||4.8%||7.2%|
|U.S. High Yield||(1.3%)||7.5%||5.4%|
|Munis Broad Mkt||1.5%||4.9%||7.6%|
Non-Traditional Assets Total Return
|Overall HF Market||(1.0%)||2.2%||(3.8%)|
|Gold Spot $/OZ||$1305||$1223||$1299|
|U.S. Dollar Index||92.6||91.7||88.7|