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

After a brief pause in April, global market performance was mixed in May as investor enthusiasm returned to the US markets while results were more negative outside of the US.  The Russell 3000 Index finished the month with a return of +2.8%.  Small cap stocks once again led the charge with the Russell 2000 Index returning +6.1% versus the Russell 1000 Index returning +2.6%.  The developed market MSCI World ex USA Index returned -1.9%, and the developing market MSCI Emerging Markets Index returned -3.5%.  A rebound in USD was a meaningful drag on non-US returns for US investors.  A retreat in interest rates helped fixed income markets with the Bloomberg Barclays US Aggregate returning +0.7%.

In the US at the Sector level, Technology (+7.4%) was the top performing sector with Energy (+3.2%) and Producer Durables (+3.2%) also strongly positive.  The yield-oriented sectors of Consumer Staples (-1.5%) and Utilities (-1.5%) continued their months-long underperformance as expectations of higher yields in fixed income siphoned off demand.

Outside of the US, growth and trade concerns weighed on the broader market with Utilities (-5.8%) and Financials (-5.2%) bearing the brunt of negative sentiment.  Health Care (+1.2%) was the lone positive sector for the month.  At the country level, the worst performers for the month were emerging markets such as Greece (-18.4%), Brazil (-16.6%), and Hungary (-14.0%).  As was the case last month, the best performers were among some of the smaller markets such as Israel (+7.4%) and Luxembourg (+4.1%).

Market volatility continued to decline from the more elevated levels of the beginning of the year.  Trade volumes increased incrementally but remained well below historical averages.  At the factor level, Value was strongly negative while Smaller Size and Quality were positive.  Equal-weighted portfolios underperformed market-cap weighted portfolio as market performance narrowed again.