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Despite our best wishes, the Bureau of Economic Analysis will not allow the first quarter negative GDP print to fade into obscurity. Over the last three months we’ve received revisions, each worse than the prior, reminding us that the best-laid plans…oft go astray. On top of a contracting economy, geopolitical risks in the Middle East, and its effects on oil prices, had many investors predicting some sort of equity correction as the summer approached. Those cries rang loudest during the spring’s typical “sell in May and go away” recommendation. Those who took that advice were surely disappointed as May and June have proven to be two of the best performing months of the year, with broad participation across global equity markets. Let’s take a look at June’s performance here.

  1. The MSCI World Index, a broad measure of developed world’s stock markets rose 1.65 percent for the month.
  2. The S&P 500, a measure of large U.S. companies, rose 1.91 percent for the month..
  3. The MSCI Emerging Market Index, a broad measure of the emerging world’s stock markets, rose 2.25 percent for the month.
  4. The MSCI REIT Index rose 0.66 percent for the month.
  5. Gold rose 6.21 percent during the month.

A famous study done on the “Sell in May” saying, published in the American Economic Review in 2002, found that this phenomenon does exist, that returns on stock markets in 36 out of 37 countries studied from 1970 to 1998 were indeed higher in the November to April period than they were in the May to October period. But, as is usually the case, the devil is in the details. In the long run, a buy-and-hold strategy outperforms the “sell in May, buy back in October” strategy because although equities underperformed during the summer months, the returns were still positive over the long-term.

We continue to see significant signs of improvement in housing and labor markets, and the threat of global deflation has receded into the background. The domestic housing market, which has been a headwind to growth, continues to show signs of life as homes are still affordable, despite rising prices, and are being financed at historically attractive rates. U.S. non-farm payrolls continue to consistently add new jobs to the economy at greater than 200K per month, a pace indicative of a labor market with less slack in it than is currently being acknowledged by the Fed. We maintain that prices are likely on the rise and that this upward pressure on inflation, as employment improves, should be more positive for the U.S. economy than negative. When the unemployment rate falls below 6%, which is likely to occur before the end of the year, Fed officials will have to consider moving forward its forecast for initial policy rate liftoff, currently estimated to be mid 2015.

 
 
   

Market commentary provided by Fifth Third Bank. Source of statistics is Bloomberg.com. This information is current as of the date of this letter and the opinions expressed are subject to change at any time, based on market and other conditions. This information is intended for educational purposes only and does not constitute the rendering of investment advice or specific recommendations on investment activities and trading. The mention of a specific security within this letter is not intended as a solicitation to buy or sell the specific security. Index performance shown within this letter is not representative of any Fifth Third managed account.

Investing involves risk, including the possible loss of principal invested. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment loss.

Past performance is no guarantee of future results. Indexes are unmanaged, do not incur investment management fees, do not represent the performance of any particular investment, and may not be invested directly into by investors. Small company investing involves specific risks not necessarily encountered in large company investing such as increased volatility. Investments in foreign markets entail special risks such as currency, political, economic and market risks.

S&P 500 Index is a composite of 500 companies, amongst the largest based in the United States, and it often used as a measure of the overall U.S. stock market.

MSCI EMF (Emerging Markets Free) Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2006 the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

MSCI US REIT Index is a free float- adjusted market capitalization weighted index that is comprised of equity REITs that are included in the MSCI US Investable Market 2500 Index, with the exception of specialty equity REITs that do not generate a majority of their revenue and income from real estate rental and leasing operations. The index represents approximately 85% of the US REIT universe.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States*.

Gold Index is the U.S. dollar per Troy ounce.

 
 


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