May 2008 Market Commentary


(As of May 31, 2008)


May-08 Y-T-D 1 Year 3 Year 5 Year
S&P 500 1.29% -3.80% -6.70% 7.04% 7.57%
S&P 400 5.29% 3.37% -2.50% 8.70% 10.94%
S&P 600 4.42% 0.50% -9.20% 3.51% 8.01%
MSCI EAFE 0.97% -3.03% -2.53% 11.19% 16.61%
MSCI Emerging Markets 1.86% -1.98% 21.67% 29.65% 33.15%
Lehman Aggregate -0.73% 1.21% 6.90% 6.77% 4.30%
Lehman Muni Bond 0.01% 0.56% 3.26% 4.05% 3.33%
ML High Yield 0.43% 1.44% -1.10% 5.82% 6.25%
T-Bills 0.03% 1.02% 3.85% 4.52% 4.29%
SSB Global Bonds -1.47% 4.56% 15.79% 8.88% 5.77%
DJ-AIG Commodity 2.74% 16.61% 27.93% 14.67% 17.06%
DJ-Wilshire REIT 0.91% 9.41% -13.13% 6.43% 11.23%


The Markets

The month of May provided investors a welcome and refreshing reprieve from what has been a rather disappointing and volatile year for most equity markets. During the month the majority of the equity markets provided positive returns for investors. Mid and small cap growth stocks led the way during the month, outperforming larger and more value-oriented companies. Technology and energy stocks were particularly strong during the month, while financial stocks continued to suffer significant losses in the wake of the ongoing credit crises and write-downs.

International stocks performed inline with domestic equities, and emerging markets continued to rebound from their lows of earlier in the year. Evidence is also beginning to surface that the U.S. dollar has begun to stabilize. Within the fixed income markets, the growing inflationary concerns stemming from high commodity prices moved the yield for the 10-year Treasury higher to above 4.0% for the first time this year. The corresponding decline in bond prices muted gains for most fixed income indexes. The Lehman Brothers Aggregate Index was slightly negative for the month of May. Commodities, on the other hand, continued their staggering run, with oil prices surging 12.2% during the month.

The Economy

Despite two consecutive positive months for most equity markets, the overall state of the economy remains unsettled. During the month of May the first-quarter gross domestic product (GDP) was revised upward from 0.6% to 0.9%. Although expected, this upward revision to GDP gave investors some confidence that the economy is still growing, albeit at rather meager pace. However, it’s important to note that most of strength came in the form of exports and government spending, not necessarily an increase in the growth catalysts of consumption or capital expenditures.

The U.S. consumer continues to face numerous headwinds. The Conference Board’s Consumer Confidence Index fell to its lowest level in 16 years. Consumers’ deep malaise likely stems from the slowdown in real disposable income as a result of higher energy prices and weakening labor income (the change in nonfarm payroll employment was negative for the first time since the second quarter of 2003). However, a recent contrarian report noted that while consumer confidence levels have been this low only five times in the last 35 years, in each of these cases stocks advanced by an average of 23% in the 12 months that followed.


Clearly much uncertainty remains for investors and the overall economy. Many investors remain hopeful that the actions by Congress and the Fed should mitigate some of the ominous pressures over the coming year. The Fed has cut rates by 3.25% over the last eight months. On a percentage basis, this represents a 61.9% decline in the Federal Funds rate target, a very aggressive percentage reduction. Typically, the positive economic impacts of rate cuts are delayed for several months. Therefore, many market observers remain optimistic that we may only now be beginning to see the impact of these measures. While only time will tell how all of these issues play out, most experts predict continuing softness for the markets for the remainder of the first half of 2008, with hopes of a modest rebound in the second half.