May Investment Review

The mood shifted sharply in May from one of optimism about a self-sustaining recovery to one in which the myriad concerns about which we’ve been writing for some time weighed increasingly heavily on stocks and other risk assets around the globe. These concerns include Eurozone debt problems, the significant fiscal problems of our own government, weakness in both the housing and labor markets, and signs that the economy is again slowing. A final-day rally trimmed May losses a bit, but markets have continued their slide into June. Large-cap U.S. stocks lost 1.2% in May, while small-cap stocks lost closer to 2%. Mid-cap stocks held up best, losing only about 0.4% (see back cover table for benchmarks and returns). Domestic fixed-income delivered good returns, with the broad high-quality bond index up 1.3%.

Both foreign-developed and emerging-market stocks were down close to 3% in May. Emerging-market bonds were down a little over 1%, while developed-market foreign bonds were close to flat. Where does that leave us through the first five months of the year? Stocks still have good gains for the year to date, from the high single digits for U.S. equities, to the mid-single digits for developed foreign markets and low single digits for emerging markets, though those gains have been further trimmed through the early part of June.