May 2021 | Global Equity Markets Review
Equity markets continued to rally in May as the reopening trade extended across the globe. An estimated 305 million doses were given in the U.S. since the 1st vaccination ⏤ enough to cover roughly 48% of the population ⏤ and 2.23 billion vaccinations worldwide.
The S&P 500 Index returned 0.70% during May while the S&P 600 Index of small stocks returned 2.0%. Further evidence of economic enthusiasm was the leadership last month in value-style investing over growth-style investing which produced some of the strongest monthly relative returns during this cycle. Value stocks have historically been more cyclical as style benchmarks are heavily weighted in economically sensitive sectors such as financials, energy and materials. Increased breadth in the market, as illustrated in the chart below, is a healthy sign for the market near term; however, it is also apparent the high valuation we have mentioned in previous monthly reviews has moved well beyond the technology-heavy pandemic beneficiaries to include most industry groups and stocks outside the largest part of U.S. benchmarks.
May was a strong month for international market returns compared to the U.S. The favorable comparison was due in part to the decline in the dollar – aiding in the return to a U.S. investor. The Vanguard Total World Stock Market ETF (VTI) return for May was 3.17% while the Vanguard Total U.S. Stock Market ETF was up just 0.46%. This was the best monthly relative return for international stocks since December 2018. After rising strongly to begin the year, the dollar is now back testing the late 2020 and 2018 lows with additional declines likely to extend the outperformance of non-U.S. stocks. Valuation of international stocks has been at a sharp discount to U.S. markets as a weaker rebound in global economies coincident with lower vaccination rates contributing to the lagged results. Incremental news on both factors has swung in favor of international economies and markets with the discounted valuation expected to narrow in the coming months. Longer-term concerns regarding the dollar’s role as the world currency are likely to flare up occasionally as the popularity of cryptocurrencies, the continued rise of China in global trade and our fiscal condition post-pandemic will share the spotlight. These factors add to our resolve in recommending international exposure to our U.S. clients.
Important Notes & Disclosures
Index Returns – all shown in US dollars
All returns shown trailing 5/31/2021 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:
- The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
- The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
- The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
- The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
- The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
- The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
- The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
- The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
- The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
- The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
- The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
- The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
- The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.
An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.
Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.
- The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
- SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
- West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
- CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market's expectation of 30-day volatility.
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