Market Monitor: May Update – Altair’s Semi-Monthly Market Update

Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.

Headlines and Highlights
  • Trump doubles down on tariffs; U.S. trade allies retaliate: President Trump followed through and imposed tariffs on steel and aluminum from Canada, Mexico and the European Union, prompting immediate retaliation from the three big U.S. trade partners. The administration also continued its tough stance on both NAFTA negotiations and further Chinese export tariffs, an approach that has frustrated other world leaders.
  • Italy’s new government rattles Europe, financial markets: A populist coalition comprised of the anti-establishment Five Star Movement and right-wing League party took power in Italy following three months without a government. The rise of parties that vow to combat European Union policies affected global markets negatively and sent the euro to a 10-month low at one point. Adding to the political turmoil in southern Europe, Spain’s prime minister, Mariano Rajoy, was ousted as the result of a corruption scandal.
  • Jobs growth affirms vigor of U.S. economy: Employers added 223,000 jobs in May, the most since February, and the unemployment rate fell to an 18-year low of 3.8 percent as the nine-year expansion retained strong momentum. Wage growth rose a still-modest 2.7 percent from a year earlier.
Selected Market Returns
market monitor Sources: Morningstar, Altair Advisers
Our Views
  • Additional trade tariffs pose incrementally more risk for markets, although we still believe reason will prevail and the standoffs will be resolved after a period of posturing and negotiating. We do not expect an extended trade war; the Trump administration will not want to jeopardize economic growth or risk negatively influencing public opinion heading into midterm elections.
  • The rise to power of euroskeptics in Italy adds more volatility to European equities and could embolden populists in other disaffected countries in the eurozone. Developments involving the new government over the coming months will factor into our outlook for European markets and international developed stocks.
  • A strong jobs report, second-quarter GDP growth estimates above 3 percent and consumer confidence near an 18-year high point to U.S. economic strength that can help offset any softness in global momentum. The economy should continue to benefit for the near to intermediate future from corporate tax relief along with accelerated government and consumer spending.
  • Small caps are still benefiting from corporate tax reform, the higher U.S. dollar and their relative lack of exposure to international volatility, as evidenced by a 6.2 percent gain for the iShares Russell 2000 ETF in May. We expect these tailwinds to last for at least the near term.
  • The 10-year government bond yield fell as volatility increased and investors fled to safe-haven bonds. The decline back under 3 percent reinforces our long-held view that bond yields will not achieve a significantly higher level absent a meaningful rise in both inflation and growth.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice.