Welcome to June and welcome to Summer, it’s almost here. So, from an economic perspective May was pretty boring, not a lot of exciting things happened during the month and I think that’s a good thing.
We continue to see unemployment look really good and we continue to see the housing market stay strong. Interest rates actually came down, which we will talk about here in just a bit, but they didn’t come down in all areas and it’s not exactly what you think. There are some interesting phenomena that are happening with the interest rate environment today and as we dive into it I think you’ll find it fascinating as well.
From a market perspective, we did have some good advances in some sectors while some sectors actually ended up negative. We will take a look at that shortly as well.
Here is a quick snapshot of the major indices out there today. As you can see, the NASDAQ 100 was the best performing index for the month, up 3.14%. The S&P 500, trailing quite a bit, just 1.24% higher. But if you look at the Russell 2000 and the S&P 600 SmallCap you’re negative almost 1.5% on both of those.
SmallCap has struggled a little bit this year. Most of you will notice we may have started off with some SmallCap earlier this year, but SmallCap was greatly reduced if not removed from the majority of our portfolios at the beginning of April.
So, SmallCap continues to struggle, and I don’t know that that is going to be the case for the rest of the year, but it is interesting to see that most of the money that’s flowing into the market today is flowing into technology, telecommunications, information technology, and the large mega-cap-like stocks. So as money flows into those areas that is what causes those indices to rise much faster.
Let’s look at sector performance for the month of May. What we see here is that Utilities is the real clear winner her, up 5.01%. A lot of that had to do with the fact that Utilities have been under pressure late last year and early this year as the interest rates started to rise. But as I said earlier, interest rates actually fell in the month of May and that has cause the Utilities markets to do very well.
Consumer Staples also higher by 3.64%. Technology is up 3.14%, which shouldn’t be a surprise as the NASDAQ did so well in May. What didn’t do so well is Financial and Energy. Energy down 3.05% and Financials down 2.47% on the month.
So as you can see, while we did have good advances in a lot of the markets it wasn’t necessarily across the board.
Let’s take a quick look at a chart from treasury.gov, and I want you to understand what’s happening on with interest rates. We have the 1 Month interest rate on May 1st at 0.67%. By the end of the month you’ll see that interest rate ticked up to 0.86% that’s almost a 0.2% increase in just a month. In the 3 Month Treasuries we saw the same phenomenon, 0.83% on May 1st, up to 0.98% at the end of the month.
Let’s fast-forward to the 10 Year Treasury. The 10 Year Treasury at the beginning of the month was at 2.33% and at the end of the month was at 2.21%. Even if you look at the 30 Year Treasury, it was at 3% at the beginning of the month, it was at 2.87% at the end of the month.
What this is telling us is that the bond market truly believes that there is no inflation in sight. Seeing the increase in the short-term treasuries, that’s coming from The Fed speaking about raising rates twice this year, but remember The Fed only controls the overnight lending rate. So, it’s the ultra-short-end of the treasury market that The Fed controls.
The only way we’re going to see that 10 Year, 20 Year, or 30 Year Treasury start to tick up is if we start to see the economy really beginning to gain traction and start to see some threats of inflation. For now, I would say we have pretty smooth sailing in the fixed-income bond market today, and as I stated earlier I think that things look really solid as far as the economy goes.
Thanks again for taking the time to join me, I hope you found the information useful. As always, if you have any questions at all make sure you contact us by filling out the form below or calling us at 913-393-100 and we’ll look forward to seeing you in our offices soon.
Founder & CEO
Investment advisory services offered through Barber Financial Group, Inc., an SEC Registered Investment Adviser.
The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.