Stocks rise as economies start to reopen

What happened.

U.S. and international stocks rose in May as governments around the world started to remove restrictions on economic activity. U.S. large-cap stocks were up by a strong 4.76 percent (S&P 500), while small-cap stocks fared well too, rising 4.31 percent (S&P 600). International developed-market stocks closed the month up 4.35 percent (MSCI EAFE Index) and emerging-market stocks were up 0.76 percent (MSCI Emerging Markets Index). May was another volatile month for stocks, if less dramatic than February and March, with the S&P 500 moving by plus or minus 1 percent on 11 of the month’s 19 trading days. Bonds rose by 0.47 percent as the interest rates paid by corporations fell slightly (Bloomberg Barclays U.S. Aggregate Bond Index). This month’s sidebar looks at the different types of bonds contained in the aggregate index, and how they help build a diversified portfolio.

Why it happened.

Stocks rose and fell over the month. They were pushed up by positive news about how fast an economic recovery will arrive and pulled down by negative news. Mid-month, markets leapt on news that a Covid-19 vaccine could be delivered soon, only to fall back when scientists noted that the tests were still in an early stage. Markets rose as economies reopened, but, on some days, fell when some experts raised concerns about possible increases in infections. Late in the month, markets largely shrugged off increased tensions between the U.S. and China over Hong Kong’s status, and China’s responsibility for the global spread of the virus. After its ups and downs, the market closed higher for the second month in a row.

All this happened against a backdrop of continuing grim economic news. The number of Americans who filed for unemployment insurance since the crisis began stands at a stunning 40 million and pending home sales and industrial production fell by record amounts in April. This shows us again that the stock market isn’t a gauge of how the economy is doing at the moment, but a projection of how investors believe companies will fare in the future.

What this means for you.

At Financial Engines, we build you a personalized portfolio to help you meet your goals. Your portfolio will probably have seen positive returns this month. If your portfolio has more risk — you’re further from retirement or have a high tolerance for risk — it will have done better due to your higher exposure to stocks. Please let us know about any changes to your situation that might impact your asset allocation. If you have any questions, give us a call.

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