Kai W. Hong, CFA
Managing Director & Chief Investment Strategist

Despite the S&P 500 Index reaching a record high mid-month, the markets were otherwise somewhat range-bound in May as most periods of rally or decline were met with quick reversals. With valuations for many asset classes at fair or full levels and the end of central bank accommodation becoming incrementally more real than academic, it feels that we are in a period of unstable equilibrium which is resulting in increasing market volatility (particularly in bonds). Economic news was somewhat mixed (capped by a negative reading for Q1 US GDP), but a standoff between Greece and its international creditors – marked by oddly different assessments from the negotiators of where the negotiations stood – re-emerged as a source of global macro uncertainty.

US equity markets were able to recover from last month’s declines as the broad market Russell 3000 Index finished the month at +1.4%. US small cap stocks did even better with the Russell 2000 Index returning +2.3%. Outside of the US, the month a reversal in recent strength with the developed markets MSCI World ex USA Index returning -0.9% and the developing markets MSCI Emerging Markets Index returning -4.0%.

Active manager performance was again mixed with individual portfolio positioning and security selection mattering more than style orientation among large cap managers. The story was different among small cap managers as relative performance was uniformly negative, and Health Care (biotech) continued to be the dominant sector performance-wise. Volatility and market volume remained low. On a factor basis, larger size and momentum were positive with stability and quality negative. Other factors were largely neutral.