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Market Month: May 2011

June 2, 2011

John Jastremski Presents:

 

Market Month: May 2011

The Markets

Equities spent much of May in a gradual but relentless decline that reversed much of April’s strong gains. Investors concerned about slowing economic growth rediscovered risk aversion, punishing the Global Dow and the small caps of the Russell 2000 the most. After surmounting the 1300-1340 trading range where it had been since February, the S&P 500 had trouble staying there until May’s last trading day, while the tech-heavy Nasdaq regained dominance over the Dow (at least for the month). Concern about Greece’s ability to avoid restructuring of its debt helped send bond buyers into the reassuring arms of U.S. Treasuries. A sell-off in commodities at one point brought oil prices back below $100 per barrel, gold below $1,500 an ounce, and silver prices down more than 20%, though all had partly rebounded by month’s end.

Market/Index 2010 Close Prior Month As of 5/31 Month Change YTD Change
DJIA 11577.51 12810.54 12569.79 -1.88% 8.57%
NASDAQ 2652.87 2873.54 2835.30 -1.33% 6.88%
S&P 500 1257.64 1363.61 1345.20 -1.35% 6.96%
Russell 2000 783.65 865.29 848.30 -1.96% 8.25%
Global Dow 2087.44 2255.22 2178.04 -3.42% 4.34%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.30% 3.32% 3.05% -27 bps -25 bps

The Month in Review

  • The Bureau of Economic Analysis said that economic growth slowed during the first quarter from 3.1% in Q4 to 1.8%. Despite 244,000 new jobs, the unemployment rate edged upward to 9%, according to the Bureau of Labor Statistics (BLS).
  • Higher food and energy costs pushed up the annual consumer inflation rate to 3.2%–the highest level since October 2008, according to the BLS–and wholesale prices rose 6.8% from a year ago. Energy prices also resulted in the highest monthly U.S. trade deficit since June of last year.
  • Uncertainty about Greece’s fate was aggravated by the arrest and resignation of the head of the International Monetary Fund, a key component of the European Union’s bailout mechanism. Reports that Greece’s austerity measures weren’t sufficient didn’t help; neither did the European Central Bank’s warning that any attempt to restructure the country’s debt could have dire consequences.
  • The Federal Reserve laid out its game plan for unwinding quantitative easing by the end of June as scheduled. Before it begins raising short-term interest rates post QE2, the Fed will first stop reinvesting the proceeds of maturing holdings into Treasury bonds.
  • The housing market continued to suffer. Both new home sales and housing starts were down almost 24% from the same time last year, sales of existing homes dropped nearly 13% over the year, and home prices experienced a double-dip downturn when the Standard & Poor’s/Case-Shiller index returned to 2002 levels.
  • The U.S. hit the current $1.4 trillion ceiling on the level of debt the Treasury may issue to pay the nation’s existing bills. A series of accounting measures, including a decision to halt investments in two federal employee pension funds, may buy time for Congress to come to some agreement on whether to raise the debt limit.

Eye on the Month Ahead

Investors who sold in May and went away will get to see whether they guessed right as the Fed heads into the last month of its QE2 bond purchases; the rest will be trying to gauge how well the economy will fare without that support. Europe’s ongoing dilemma about its weaker members’ finances will reinforce concerns about the impact of potential debt restructuring on foreign banks.

Key dates and data releases: auto sales, manufacturing, construction spending (6/1); productivity/labor costs (6/2); unemployment/payrolls, services sector (6/3); consumer credit (6/7); Federal Reserve “beige book” (6/8); international trade (6/9); import/export prices, Treasury budget (6/10); wholesale inflation, retail sales (6/14); consumer inflation, industrial production, international capital flows (6/15); housing starts (6/16); quadruple witching options expiration, leading economic indicators (6/17); home resales (6/21); Federal Reserve Open Market committee announcement (6/22); new home sales (6/23); final Q1 gross domestic product (GDP), durable goods orders, corporate profits (6/24); personal income/spending (6/27); home prices (6/28).

Data source: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflects price changes, not total return.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com,  access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

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