May Market Review
May was another decent month for the U.S. stock market. The overall market (Russell 3000) gained nearly 2%, with both large-caps (S&P 500) and small-caps (Russell 2000) up by about 2%. International stocks, however, relinquished their year-to-date advantage over U.S. stocks with losses in May. Developed markets (MSCI EAFE Index), such as Europe and Japan, lost 1%. Emerging market stocks (MSCI Emerging Markets), which include China and Brazil, lost 3%. Meanwhile, the bond market was essentially unchanged with only a small gain for the month. As of the end of May, bonds have still been outperforming the stock market so far this year. The 10-year Treasury ended last month with a yield of 1.92%.
It Pays to Be an Optimist
Despite plenty of bad news in recent months and years, it’s important to note that the U.S. stock market is currently experiencing one of its longest bull runs ever!
Since the start of the bull market in March 2009, the overall U.S. stock market has not seen a 20% loss from a peak to low price. However, there have been plenty of reasons to worry about the market during that time, including: the European debt crisis, U.S. debt downgrade, crises in Greece, Italy, and Spain, U.S. fiscal cliff and sequestration, taper risk, Ebola, Zika, Grexit, Brexit, weak dollar, strong dollar, potential Chinese global domination, potential Chinese market crash, skyrocketing commodity prices, crashing commodity prices, fear of rising interest rates, fear of plummeting interest rates, “worst presidential candidates ever”, massive debt, and the list goes on, and on, and on.
When the noise of chaos in the world gets too loud, it pays to remember that the financial markets are not coin flips. They typically generate positive gains, and they have more up days than down. They even have more up weeks than down, and as the duration stretches from months to quarters to years, the odds of gains improve. That makes sense because the economy grows over time, and the stock market participates in that economic growth. For a long-term investor to succeed, it pays to keep the historic perspective in mind, be patient, and not follow the news.
Even the Media Now Overrates Bad News
It’s not uncommon for the media to focus on the negative, let’s review some of the negativity and how they’re driving investor’s fears.
There always seems to be something to worry about. Currently, many worry about a possible “Brexit” (an abbreviated term for a “British exit” from the European Union). The UK will hold an in-out referendum on its EU membership on June 23.