U.S. stocks ended May with their best returns since February, though gains were muted as mixed economic data stirred concerns about the strength of the nation’s recovery. First quarter real GDP growth was revised down to -0.7%, from the first estimate of 0.2%, due to lower than expected numbers on international trade, manufacturing inventories, and retail sales. Consumer sentiment tumbled to 90.7 in May, down from 94.5 in April, given moderating expectations for the U.S. economy. Initial jobless claims rose 7,000 in the last week of May to 282,000, but the four-week moving average remains near this cycle’s lows, and is 13% below the comparable figure a year ago. The ISM manufacturing index rose to 52.8 in May, exceeding economists’ expectations. Construction spending increased 2.2% in April, well above consensus expectations and the strongest number in over a year, while factory orders declined 0.4%, a disappointment after jumping 2.1% in March. Oil prices have rebounded over the last several months and are 7% higher than where they started the year. US oil production hit its highest level since weekly data began in 1983 despite the ongoing decline in new wells. Housing continues to firm, with the Case Shiller housing price index gaining 5% in April vs. last year. Pending home sales were up 3.4% for April, moving back to levels not seen since 2006. The mixed but generally positively trending economic data leaves open the possibility of a Fed rate hike in 2015.
U.S. stocks posted moderate gains in May, with all three major U.S. equity indices hitting fresh all-time highs. Small caps outper-formed mid & large caps, while growth outperformed value. The S&P 500 ended May with a weekly decline of 0.84%, as downward revisions to 1st quarter GDP were posted. Consumer spending was essentially unchanged in April from the previous month, below the 0.2% increase expected by economists, while incomes rose 0.4%, indicating that consumers continue to save and maintain a cautious stance. International stocks ended four straight months of outperformance with losses for the month. Emerging markets are facing headwinds, including weak commodity prices and a strong U.S. dollar.
Treasuries fell in May, with the yield on 10-year U.S. Treasury notes rising to 2.12%. U.S. investment-grade corporate, government and agency-backed bonds, as measured by the Barclays U.S. Aggregate Bond Index, declined 0.24% last month. U.S. high-yield corporate bonds again posted gains as spreads continued to tighten on riskier debt. Inflation expectations are well contained despite some evidence of rising labor costs. Prospects remain for an interest rate hike by the end of the year, though Fed Open Market Committee minutes suggested only a “few” members were in favor of raising rates at the June meeting, versus “several” who voiced the same in March. The next Fed meeting is scheduled for June 16th through the 17th.