May was a strong month for global risk assets. Global equities were mostly higher with continued outperformance outside of the US and by growth stocks within US markets, the USD weakened, the US interest rate curve continued to flatten, commodities were mixed, and credit spreads were little changed. Early in the month, the Fed left interest rates unchanged and indicated that two more rate hikes were likely later this year in June and September, while the Fed minutes indicated that officials were moving towards a consensus to begin reducing the central bank’s balance sheet later this year. Concerns over Congress’ ability to agree on a debt ceiling increase have caused some to question the likelihood of the second rate hike in September. Emmanuel Macron won the French Presidential election with almost two-thirds of the vote, providing a boost to European stocks and the pro-EU establishment. The Bank of England left interest rates and its QE program unchanged and indicated that if Brexit negotiations proceed smoothly, it may start to increase rates in response to rising inflation. The US job report showed that 211,000 non-farm jobs were added in April, the unemployment rate ticked lower to 4.4%, and the labor force participation rate fell slightly to 62.9%.
Notable corporate transactions announced in May included the $875 million purchase of Canam Group by the Dutil family and American Industrial Partners, IAC’s $500 million acquisition of Angie’s List, the $600 million purchase of Viptela by Cisco, Sinclair Broadcast’s $3.9 billion acquisition of Tribune Media, the $2.4 billion acquisition of Kate Spade by Coach, DHX Media’s $345 million purchase of the entertainment division of Iconix Brand Group, KPS Capital’s $425 million acquisition of golf brands from Adiddas, Verizon’s $3.1 billion acquisition of Straight Path Communications, the $7.2 billion purchase of Patheon by Thermo Fischer Scientific, Moody’s $3.3 billion acquisition of Bureau van Dijk, the $560 million purchase of Pittsburgh Corning by Owens Corning, Spectrum Brand’s $225 million acquisition of PetMatrix, the $14 billion merger of Huntsman and Clariant, the $446 million acquisition of Nutraceutical by HGGC, CF Corp’s $1.84 billion purchase of Fidelity & Guaranty, LSE’s $685 million purchase of Citigroup’s analytics and fixed income index operations, and First Data’s $750 million purchase of CardConnect.
Developed market equity markets were mostly higher in May (see page 8), with the largest gains in the UK (+4.8%), Hong Kong (+3.5%), and Japan (+2.2%); the worst performing were Australia (-3.5%), Canada (-1.4%), and Italy (+0.8%). US small caps underperformed large caps, with the Russell 2000 down -2% and the Russell 1000 up 1.3% (see page 3). IT (+4.4%), Utilities (+4.2%), and Consumer Staples (+2.9%) were the best performing sectors in May, while Energy (-3.4%), Financials (-1.2%), and Telecom (-1%) were the worst performing (see page 2). Large cap growth (+2.6%) outperformed large cap value (-0.1) in May (see page 3). Emerging Market equities were mostly higher in May (see page 9), with the biggest gains in Korea (+6.3%), Argentina (+6%), and China (+5.4%); Russia (-6.6%), Brazil (-3.7%), and Mexico (-1.1%) were the worst performing.
In currencies, the USD Index was down 2.1% in May (see page 10). The strongest developed market currencies against the USD were the Euro (+3.2%), New Zealand Dollar (+3.2%), and Swiss Franc (+2.8%); the weakest were the Australian Dollar (-0.8%) and British Pound (-0.5%). Emerging market currencies were mostly higher against the USD, with the biggest gains in the Chinese Yuan (+2.2%), South African Rand (+2.2%), and Korean Won (+1.6%) and losses in the Brazilian Real (-1.5%) and Indian Rupee (-0.3%).
The US Treasury yield curve flattened in May (see page 12). 10 year rates closed the month at 2.20%, down from 2.28% at April month end. Investment grade and high yield credit spreads were little changed in May (see page 13).
In commodities, the GSCI index was down 1.5% in May (see page 11), with gains in Livestock (+4.4%) and Precious Metals (+0.4%) and losses in Energy (-2.6%), Agriculture (-1.7%), and Industrial Metals (-0.3%). Within individual commodities, Lean Hogs (+12.1%), Cocoa (+11.3%), and Gasoline (+3%) saw the biggest gains, while Natural Gas (-8.6%), Sugar (-7.7%), and Soybeans (-4.1%) saw the biggest losses. Gold was up 0.4% for the month.
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