What happened:

• U.S. equities were mixed in May, with the S&P 500 returning + 0.55%, the DJIA + 1.93%, and the NASDAQ a negative (- 1.53%).  The Russell 2000 small-cap index performed slightly positive returning + 0.11% in the month of May. Year to Date (05/31) the Russell 2000 has returned +14.89%.  The S&P 500 & DJIA indices are also performing well, returning + 11.93% & + 12.82%.  The NASDAQ index’s performance has been just about half that at + 6.67% so far through the first 5 months of 2021. 

• Markets around the world, excluding the US, outperformed in May both on the Emerging Markets side and in Developed countries.  The MSCI Emerging markets index returned a positive 2.3% while the European markets, as seen in the MSCI EAFE index returned + 1.8%.  Year-to-Date both indexes have returned approximately between + 7-8%.  International equities continue to provide attractive opportunities as the landscape of the global economy continues to improve.

• The fixed Income markets, measured by the Barclay’s Aggregate Bond Index was slightly positive in May returning + 0.33%.  The index’s performance corresponds with bond yields slight decline across the US Treasury yield curve. Month over month, the 2Yr. 10Yr. & 30Yr. US Government Notes / Bonds all yielded lower to end the Month.  The Barclays Aggregate Bond Index still remains in negative territory YTD returning ( – 2.29%) so far through May.  Inflation concerns continue to be a major challenge to fixed income markets.

What we did:

• Taking advantage of a mid-month sell-off, we increased our allocation to a few companies we view favorably in the long term.  Two names we increased our position in are SolarEdge Technologies (Ticker: SEDG) & Grow Generation Corp. (Ticker: GRWG).

• We stayed the course with our global allocation in our core equity strategy, making only a minor adjustment.  We decreased some of our direct exposure to China by reducing our investment in KWEB.  We in turn increased our position in the Semi-conductor ETF, SMH.

• For clients seeking dividend income, we increase our position in Innovative Industrial Properties (Ticker: IIPR) as a mid-May dip not only created an attractive price point but also pushed the yield above 3%. 

What we are watching:

• Washington DC is always an interesting place to start.  It seems that the politicians are headed toward their usual partisan stance, leading to little or no compromise on the many legislative items Democrats will be trying to turn into law. Senate Filibuster rules are in question as well as lots of local changes to state voting laws.  We are expecting a corporate tax increase and a higher number of IRS employees designed to lead to generate more revenue to help support the 2022 budget.

• Continued easy monetary policy for the time being as the FED and US Treasury officials are hoping that May’s increase in inflationary numbers is just “transitory” and nothing permanent and that inflation will revert back to its long term target of 2%.  Should the FED have to react to counter the increase in inflation this could lead to being a negative catalyst in the equity markets.

• The state & local rules around Covid-19 are being relaxed and this trend toward being fully reopened should continue throughout the summer. Globally Covid-19 still remains a challenge in some regions.  The Japan Olympics should provide a temperature check to see where we are on the international scale.  Domestically we are keeping a close watch on the unemployment numbers, and other Macroeconomic indicators to gauge the strength of the underlying US economy, some feel it may not be operating back to full capacity for some time. 

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