May Market Insight

By Ryan Gilmer, CFA, CMT Chief Investment Officer

June 1, 2020

Here is a recap of market performance for the month of May and year to date:

Stocks continued to rebound strongly in May, led by the Russell 2000 (US small company stocks). The S&P 500 and the MSCI World Ex-US (international stocks) were also up to a lesser extent. The Bloomberg Barclays Aggregate Bond index was slightly up as well.

Year-to-date, which includes the most severe stretch of the coronavirus pandemic, bonds have handily outperformed, as investors sold stocks and purchased bonds because they are less-volatile assets. It’s also worth noting that after the strong market rallies in April and May, the S&P 500 reduced its losses to less than 5% from the March 23rd low of 32%. Riskier stocks, such as small cap and international, are still behind.

This year’s market performance is another reminder of why diversification is such an enduring investment principle. The following chart from JP Morgan shows historical performance of the following asset classes since calendar year 2005:

  • Emerging Market (EM) Equity
  • Developed Market (DM) Equity
  • Real Estate Investment Trusts (REITs)
  • US Large Cap
  • US Small Cap
  • Commodities
  • High-Yield Bonds
  • Cash
  • Fixed Income

The chart illustrates how asset classes rotate in terms of performance. Of the 9 asset classes shown, 6 of them have topped the chart between 2005 - 2019:

  • Large Cap – ’19
  • Cash – ‘18
  • EM Equity – ’17, ’09, ’07, ’05
  • Small Cap – ’16, ‘13
  • REITs – ’15, ’14, ’12, ’11, ’10, ‘06
  • Fixed Income – ’08

Even though each asset class has had differing performances, a portfolio with a mix of asset allocations (represented by the cream color in the chart) generally averages somewhere in the middle. In our experience, we find that many clients, especially those in retirement, choose this type of investment mix because it reduces risk/volatility. Stocks grow over time, but investors who had bonds this year were glad they had them. Jack Bogle, the founder of Vanguard, who typically invested half his portfolio in stocks and half in bonds, once said, “I spend half of my time wondering why I have so much in stocks, and about half wondering why I have so little.” This statement accurately demonstrates the value, as well as the struggle, of investing in a diversified portfolio.

As always, please contact us with any additional questions or to discuss your accounts in further detail.

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