May 2022 | Global Equity Markets Review
Equity markets managed to squeeze out positive returns for May thanks to a late-month rally. The S&P 500 Index total return was 0.2% for the month as concern over economic growth, confirmed by weak retail company earnings, weighed on stocks for most of the period. The near-zero return in the S&P 500 belies the volatility witnessed during the month. One measure of volatility defined as the intraday high minus low divided by the previous close showed May as the third most volatile month over the past decade. Equity indexes beyond the S&P 500 performed better with the S&P Mid Cap 400 and S&P Small Cap 600 returning 0.7% and 1.9%, respectively. Cyclical stocks returned to favor by investors from the prior month led by energy, banks, and semiconductors while mostly non-cyclical groups such as healthcare, consumer staples and cyclical retail dragged the broad benchmarks lower. The value style continued to shine with the Russell 3000 Value Index total return of 1.9% compared to the Russell 3000 Growth Index total return of -2.3% for May.
It can be argued risk is always present in the stock market where uncertain outcomes are a given. While most agree falling stock prices should be expected from time to time, it nevertheless continues to surprise investors. The first chart below highlights the maximum drawdown investors have experienced in the S&P 500 dating back to 1972. Even inclusive of strong calendar year returns, declines of 10% or worse occurred in well over half of the years covered in this period. While market declines are never welcome and the catalyst behind the market drop is often surprising, it should not be considered unexpected. It is also worth noting what often precedes market volatility is a high level of complacency which is illustrated in the second graph regarding valuations. Many of the largest stocks were expensive relative to the rest of the market at the beginning of 2022. Valuations at the end of May are now more reasonable and more balanced across market size and between value and growth styles. We regard this as a healthy sign of purging in excess complacency and a more realistic assessment of risk in both small untested new companies as well as large growth companies believed impervious to the known risks facing equity investors.
Global equity bourses repeated the better than U.S. performance seen in April with the second month of positive relative results. The S&P Global ex-U.S. Index return was 0.55% in May with both major regions (Europe and Asia) contributing to the advance. Emerging markets were not as strong with the S&P Emerging Market Index returning 0.03% with a standout performance from Latin America and lagging returns in both European and Asian developing markets. The dollar in May showed the first monthly decline of the year and was a tailwind to U.S. investors with overseas allocations.
Notes & Disclosures
Index Returns – all shown in US dollars
All returns shown trailing 5/31/2022 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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