June market update

The S&P 500 and NASDAQ Composite had their strongest monthly gains in three months in May. Even Foreign equities continued to generally outpace domestic equities in May reflecting an improving global economy. The old saying, “sell in May and go away, hasn’t applied so far this year.

U.S. stocks ended moderately higher in May for a seventh straight month, as the S&P 500 and NASDAQ Composite more than fully recovered from their May 17 declines of 1.8 percent and 2.6 percent, respectively. The NASDAQ Composite performed the best among the three major U.S. equity indices, as solid technology earnings drove investor optimism. The index rose 2.67 percent last month, and was up 15.72 percent YTD. The Dow Jones Industrials trailed with a 0.71 percent May gain, up 7.47 percent YTD.

The month was characterized by economic data pointing toward modestly improving GDP growth and tame consumer prices. Investors are expecting another rate hike by the Federal Reserve in June. Most analysts expect two more increases this year. Meanwhile, the markets have been supported by stronger-than-expected corporate earnings, with the first quarter earnings season finishing with overall profit growth of 15.4 percent for the companies in the S&P 500.

Within the S&P 500, 7 of its 11 major sector groups advanced last month, led by Technology (+4.40 percent), Utilities (+4.24 percent) and Consumer Staples (+2.85 percent). Value-oriented sectors such as Energy (-3.40 percent), Financials (-1.21 percent) and Telecom (-0.98 percent) fell the most. So far this year, Technology (+20.49 percent) is the leader, followed by Consumer Discretionary (+12.34 percent) and Utilities (+11.77 percent). Only two sectors are negative this year, Energy (-12.46 percent) and Telecom (-8.06 percent).

Large cap stocks, as measured by the S&P 500, performed best in May, outperforming small and mid-cap companies. Small cap companies, as measured by the Russell 2000 Index, fell 2.03 percent last month, while the Russell Mid Cap Index returned 0.91 percent. Large cap stocks have also gained the most this year, up 8.66 percent YTD. Growth stocks outperformed value stocks in May, with the Russell 1000 Growth Index up 2.60 percent, while the Russell 1000 Value Index fell 0.10 percent. The outperformance in growth stocks has continued to widen on a year-to-date basis, with growth shares up 14.30 percent, while value stocks trailed with a 2.97 percent YTD gain.

So far the markets have ignored the political drama out of Washington, and focused on earnings and the economy. At some point, this could change, as investors are still hoping for a health care and tax reform, as well as continued reduction in government regulation.

D. Scott Peterson is CEO and head investment manager for Peterson Wealth Management may be reached at 775-673-1100/775-423-8007 or at Petersonwm.com.