U.S. stocks scored gains for the month of May despite ending in the red in the final week.
Both the S&P 500 and the Dow rose 1% in price in May after falling 0.8% and 1.1%, respectively, last week. NASDAQ continued to outperform the two blue-chip indexes, gaining 2.6% for the month after losing a more modest 0.4% last week. Stocks were softer most of the week as reports on the U.S. economy – notwithstanding Friday’s downwardly revised first quarter GDP growth rate to negative 0.7% — were relatively positive, which could give the Fed the comfort it needs to start raising interest rates later this year. But the GDP report was good for bond prices, which rose Friday and for the week, lowering yields by about 10 basis points on the long end. But bond prices were lower for the month, with the yield on the 10-year note ending at 2.12%, up from 2.04% at the end of April.
Outside of the GDP report, other economic statistics released last week were fairly positive compared to recent performance. Durable goods orders for April fell 0.5%, roughly in line with estimates, but the core figure, excluding the volatile transportation sector, rose 0.5%, the second straight monthly increase. Housing sector reports were positive. Pending home sales rose 3.4% in April to their highest level in nine years, beating estimates, while new home sales jumped 6.8%. The S&P/Case-Shiller 20-city home price index rose 1% in March and 5% compared to a year earlier; both figures were ahead of expectations. Two consumer confidence indexes for May showed a slight improvement compared to the previous month.
European stocks were sharply lower for the week but not enough to push them into the red for the month as it appeared that no bailout agreement with Greece was imminent. The Stoxx Europe 600 fell nearly 2% last week, with most of the loss coming on Friday. For the month, the index was up 1%. Germany’s DAX index fell more than 3% last week after losing 2.3% on Friday, ending May with a small loss. In the sovereign bond market, German bund prices were higher for the second week in a row, with the yield on the 10-year bund falling to 0.49% from 0.61% the previous week. Greek officials were optimistic that a deal could be reached over the weekend, but its group of creditors – whose word carries more import – apparently wasn’t so upbeat.
Chinese stocks had their first losing week in nearly a month but remained strongly positive for May. The Shanghai composite index fell 1% last week but held onto a nearly 4% gain for the month. The index is still up more than 42% so far this year and 133% for the past year. On Thursday the index plunged 6.5%, its biggest one-day drop in four months, after several brokerage companies tightened their margin lending requirements and China’s central bank drained cash from the financial system. Hong Kong’s Hang Seng index fell 2.2% on that news and finished the week down 2% and off 2.5% for the month.
Japanese stocks continued to move higher thanks to a weaker yen, with the Nikkei 225 gaining 1.5% for the week and 5.3% for the month after rising 11 straight sessions. The yen has dropped 4% against the dollar in the past two weeks and ended May at 124 to the dollar, its lowest level in more than 12 years. India’s Sensex lost 0.5% last week but gained 3% in May. The government said the country’s GDP expanded by 7.3% in the year ending in March, a four-year high, after growing by an annualized rate of 7.5% in the latest quarter.
Reports/dates/facts/links worth paying attention to over the next week:
- June 1: Personal income and outlays for April; construction spending for April; ISM manufacturing composite index for May.
- June 2: Factory orders for April; auto sales for May.
- June 3: ADP national employment report for May; ISM non-manufacturing composite index for May; Federal Reserve Beige Book.
- June 4: Weekly unemployment claims.
- June 5: Labor Department unemployment and payrolls report for May.
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