May 2023 | Global Equity Markets Review

Market Updates June 9, 2023

Unusual market patterns continued in May. The S&P 500 Index total return was +0.43%, while the S&P Mid Cap 400 and S&P 600 Small Cap returned -3.19% and -1.75%, respectively. Cyclical stocks marginally beat non-cyclicals, but it is worth noting that only 3 of the 11 major economic sectors had a positive return in May which was the second worst showing this year except for February. The outperformance of the largest stocks in the U.S. market was evident in the S&P 500 Equal Weight Index return of -3.79%, which ranks as the third worst comparative return over the past ten years (Mar '20 & Mar '23). Between styles, growth easily outpaced value because of the strong outperformance of the technology sector discussed below. The Russell 3000 Growth Index and Value Index returns were +4.30% and -3.76%, respectively, the widest monthly gap in over 20 years.

With the panic scenario of the debt ceiling negotiations now behind the market, investor attention returned to the potential of artificial intelligence. The debate rages with extreme outcomes on the impact A.I. might have on our society. Investors are now placing their bets, with winners and losers tagged before all the facts are gathered and regulations and legal boundaries are established. The early beneficiaries have been large companies in general and technology companies specifically. May has proved to be a graphic example of crowd-inspired price moves — illustrated in the bottom two charts. The first chart illustrates the breakdown of the S&P 500 Index by market value of individual companies. Because this index is weighted by the market value of the company, moves in Apple stock (the largest stock in the index) have a greater impact than the 50th largest stock (Morgan Stanley). The weight of the Top 50 stocks has reached a multi-decade high and has a greater impact on the index than the bottom 400 stocks. Many of the largest stocks are in the technology sector, and the second chart shows the valuation of this sector compared to ten other economic sectors. Relative valuation of technology stocks is also at a multi-decade high, strongly suggesting the most optimistic case of artificial intelligence applications will be the outcome. As it exists today, narrow market leadership is not a harbinger of future market returns; however, it has historically indicated a top in relative performance for the most expensive stocks.

International equity markets experienced declines in May compared to the U.S. The S&P Global BMI ex-U.S. total return was -3.29%, whereas the S&P 1500 Composite Index return was .18%. Weakness was more prominent in developed markets, as indicated by the S&P Developed BMI Index ex-U.S. total return of -3.70%. In contrast, the S&P Emerging Markets fell by a smaller margin of -2.03%. The dollar was a significant headwind in May, rising 2.62% — marking the second-highest monthly rise this year. Traders who heavily wagered against the dollar, expecting it to lose value, unwound bearish positions, likely prompting the strong move higher once the debt crisis was resolved by month’s end. Contentious negotiations surrounding the debt ceiling was a major overhang and the month-end resolution was not in time to save a weak market environment.

Notes & Disclosures

Index Returns – all shown in US dollars

All returns shown trailing 5/31/2023 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:

The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.

An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.

Key Indicators

Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.

The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market's expectation of 30-day volatility.

General Disclosure

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