The market continued its steady advance, albeit with fits and starts during the month. The 1.6% “correction” of May 17 – the biggest losing day of the year so far – lasted all of one day. Anyone trying to time that decline missed it if they blinked. By the end of the month, the S&P 500 was up 1.4% (8.66% YTD), thanks to technology driven names that now comprise nearly one-fourth of the index.
Small companies, once expected to lead the market in 2017, declined 2.03% in May, bringing the YTD performance of the Russell 2000 index to +1.48%.
For U.S. equities of all sizes, the disparity between “value” and “growth” stocks grew wider by the month. The performance difference between the two styles is approximately 1000 basis points (or an absolute 10%) for the year. The value emphasis AWM&T placed in that portion of portfolios almost a year ago has struggled in 2017. Dividend focused stocks are also in that same category of large company value, so they, too have lagged behind as the growth stocks have gained. Yields for these stocks, though, remain near or above the 3% area, making them very competitive with the bond market.
Still, we believe value type stocks will have their day and remain committed to that style emphasis for the foreseeable future. In the meantime, our diversified approach does include some growth stock exposure in the mid and small cap range, which has provided a performance buffer for our portfolios.
The bigger news has been occurring outside of the United States. International funds have performed in the double digits this year (EAFE index +14.4%), far outpacing the S&P 500 index. Our move to increase overseas exposure last summer is paying off for investors this year. As the rest of the world continues to grow, their stocks remain undervalued. For AWM&T, the international area shows continued potential for outperformance.
Fixed income markets continued their slow, steady pace as the Intermediate Gov’t/Credit Index was +0.5% for May and +1.91% YTD. Our moves toward the high yield and international bond areas last year continue to provide favorable risk-return performance. Coupled with the investment grade corporate bond positions we favor, AWM&T has been able to provide outperformance along with lower than index risk levels.
On any given day, there can appear a degree of uncertainty in the government, the economy or the world. Despite the talk – or even the action – the markets continue to reflect positive earnings growth and a higher level of optimism than in the past. Our portfolios reflect that sentiment and are well positioned for sustained economic growth.