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Monday, June 1, 2020

May 2020 - Monthly Market Commentary

Most risk assets continued to rally in May, as coronavirus new case and death curves declined in many countries, shut down economies continued to gradually reopen, and additional fiscal and monetary stimulus was implemented. Global equities moved mostly higher, with growth stocks again leading the rally, the oil complex rebounded strongly, the US dollar index weakened, and credit spreads tightened. During the month, the Federal Reserve confirmed the start of its corporate bond buying programs, changed bank capital requirements to encourage participation in the Money Market Mutual Fund Liquidity and Paycheck Protection Programs, updated the terms of its Municipal Liquidity Facility, clarified its high yield ETF purchase plans, and announced commencement dates for its Main Street Business Lending Program. In China, fixed asset investment fell 10.3% in the first four months of the year, and infrastructure investment fell 11.8%; China decided not to set an annual GDP growth target amidst coronavirus uncertainties. Cumulative US jobless claims over the 10 weeks ended May 23 exceeded 40 million, and continuing claims through the week ended May 16 exceeded 21 million. The April US jobs report showed that 20.5 million jobs were lost during the month, the unemployment rate rose to 14.7% (from 4.4%), the labor force participation rate fell to 60.2% (the lowest level since 1973), average hourly earnings rose 5% from a year earlier (this sharp increase was inflated by the loss of many lower paying jobs), and the total labor force fell to 156.5 million, of which 133.4 million were employed.

Developed market equities mostly rose in May (see page 8), led by the Germany (+7%), Japan (+6.7%), and the S&P500 (+4.7%), and losses in Hong Kong (-8.4%). US small caps outperformed large caps, with the Russell 2000 up 6.5%, and the Russell 1000 up 5.3% (see page 3). All 11 S&P 500 sectors were up in May with the biggest gains in IT (+7.1%), Materials (+7%), and Communication Services (+6%). Large cap growth (+6.7%) outperformed large cap value (+3.4%) in May (see page 3). Emerging market equities mostly rose during the month (see page 9), with the biggest gains in Argentina (+19.9%), Brazil (+8.9%), and Malaysia (+6%), and the largest losses in India (-2.1%), Taiwan (-1.6%), and Mexico (-1%).

In currencies, the USD Index weakened in May (see page 10). The Norwegian Krone (+5.4%), Swedish Krona (+3.5%), and Australian Dollar (+2.4%) saw the biggest gains against the USD, while the British Pound (-2%) and Japanese Yen (-0.6%) weakened. Emerging market currencies were mixed against the USD, with the biggest gains in the Mexican Peso (+9%), Russian Ruble (+6%), and South African Rand (+5.6%), and the biggest losses in the Korean Won (-1.4%), Malaysian Ringgit (-1.2%), and Taiwan Dollar (-1%).

The US interest rate curve flattened at the short and intermediate terms, but steepened at the long end (see page 12). 10 year rates closed the month at 0.65%, little changed from April month end. US investment grade and high yield spreads tightened (see page 13).

In commodities, the GSCI index increased (+16.4%) in May (see page 11), with gains in Energy (+35.2%), Livestock (+5.4%), Precious Metals (+4.2%), Industrial Metals (+2.9%), and losses in Agriculture (-0.2%). Within individual commodities, Crude Oil (+55%), Brent Crude (+38.6%), and Gasoline (+35.4%) saw the biggest gains, while Natural Gas (-16.7%), Coffee (-9.4%), and Lean Hogs (-3.7%) saw the biggest losses. Gold was up 2.7% in May.

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