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The Week In Review For May 31st

|Includes: Alphabet, Inc. Cl C (GOOG)

The old adage was sell in May and go away. It proved wrong this month, with the S&P 500 Index up more than 3 percent heading into the last day of trading.

Technology stocks were some of the best performers in May. The broad technology indexes were up nearly twice as much as the broader market, lifted higher by a strong earnings report from Cisco (NASDAQ:CSCO). That company saw shares climb nearly 20 percent in May, and solid gains from tech behemoths such as Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG) helped lift the sector.

It wasn't such a great month for the utility sector though. Rising bond yields hit the sector hard, inducing momentum traders to find greener pastures. Fidelity Select Utilities (MUTF:FSUTX) was down more than 5 percent for May with only one day left to cut those losses.

Aside from utilities, the Japanese stock market experienced two big sell-offs in May: a 7 percent drop and a 5 percent drop, coming on the last two Thursdays in May. The cause of the decline was widespread profit taking, as the index is up more than 80 percent from the start of the rally in November and that pace was becoming far too rapid. Japanese bond yields were starting to move higher and if that happens with any speed, Japan could quickly find itself in a full blown debt and currency crisis. Elections are coming up in July and they could decide whether the current economic policies are strengthened or curtailed. Given the stakes of either choice, Japanese stocks will experience continued volatility as the election draws near.

The second estimate of first quarter GDP was released in late May and the growth figure was down 0.1 percent to an annualized 2.4 percent. The media blamed the slower growth on reductions in spending increases in Washington, D.C., but other components of the report had a greater impact. Even if the slower spending increases were responsible for the dip in growth, as we've pointed out before, a reduction in Washington spending heralds faster GDP growth in the future because resources are freed up for the private economy. Other economic data in May showed the housing recovery picking up speed and consumer spending resilient.

While investors would have missed out on gains if they sold in May, the adage exists because the summer months tend to be unfavorable to stocks - culminating with the historically rocky September. However, coming off of January's big gains, the outlook for the year was very positive and nothing so far has derailed that forecast. Weakness in commodities and markets such as Australia and Brazil show the effect of a stronger dollar, which is positive for U.S. equities. Rotation out of sectors can be volatile, as we saw with utilities, but the bulls remain in charge. We expect to see more volatility over the summer months, but at this point, we still encourage you to stay committed to your investment plan.

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