The Week In Review


The major averages finished the month of May on a mixed note. The S&P 500 added 0.2%, locking in a monthly gain of 2.1%, while the Nasdaq Composite (-0.1%) and Russell 2000 (-0.5%) lagged. The two indices narrowed their monthly gains to 3.1% and 0.8%, respectively.

Outside of the relative weakness among small-cap issues, the Friday session was very quiet as evidenced by the S&P 500 spending the entire trading day in a seven-point range. Similarly, intraday volume was largely in line with yesterday's session, which saw the lowest volume of the year, but today's final tally was boosted by semi-annual MSCI rebalancing. As a result, more than 900 million shares changed hands at the NYSE floor.

Overall, countercyclical sectors fared better than the growth-sensitive side of the market. In fact, all four defensively-oriented sectorsconsumer staples (+0.7%), health care (+0.3%), telecom services (+0.3%), and utilities (+0.8%)outperformed, while five of six cyclical sectors were unable to keep up with the S&P 500. Meanwhile, the financial sector (+0.2%) settled in line with the S&P 500 after spending the bulk of the session just above its flat line.

Interestingly, the health care sector was able to finish among the leaders even as biotechnology followed in the footsteps of the Russell 2000. The iShares Nasdaq Biotechnology ETF (IBB 239.59, -1.37) lost 0.6%. Furthermore, the underperformance of biotech weighed on the Nasdaq, which also had to contend with losses among some top-weighted technology components.

Specifically, the largest Nasdaq componentApple (AAPL 633.00, -2.38)shed 0.4%, but it is worth mentioning the decline followed a big rally over the past two weeks. Despite today's loss, the largest tech stock surged 7.3% in May. Outside of Apple, Cisco Systems (CSCO 24.62, -0.06) and Oracle (ORCL 42.02, -0.18) also contributed to the underperformance of the Nasdaq.

Elsewhere, the consumer discretionary sector ended just behind the broader market even as participants received another dose of disappointing earnings from the retail space. Express (EXPR 12.61, -1.02), Guess? (GES 25.50, -1.38), and Pacific Sunwear (PSUN 2.42, -0.52) lost between 5.1% and 17.7% in reaction to below-consensus earnings and/or guidance, while the SPDR S&P Retail ETF (XRT 83.78, +0.34) added 0.4%.

Also of note, today's disparity between small caps and blue chip listings did little to scare investors as evidenced by a 1.2% decline in the CBOE Volatility Index (VIX 11.43, -0.14), which ended the day just a shade above its lowest close of the year. On the fixed income side, Treasuries alternated between gains and losses, but ultimately settled flat with the 10-yr yield at 2.47%.

Reviewing today's data: "Personal Income increased an in-line 0.3% in April, but consumption fell 0.1% against the 0.2% increase that was expected by the consensus. Once again, the report failed to show any pent-up demand resulting from the severe winter weather. Core PCE prices rose 0.2%, as expected.
"The Chicago PMI increased to 65.5 in May from 63.0 in April. The consensus expected the Chicago PMI to fall to 60.3. New order levels accelerated as the related index increased to 70.2 in May from 68.7 in April. That did not translate into stronger production as the index fell to 64.4 in May from 70.5. Instead, much of the new orders growth was marketed for backlogs as that index increased to 61.4 from 54.9. The strength of the backlogs index should support elevated production levels.
"The final reading for the May University of Michigan Consumer Sentiment Index increased to 81.9 from 81.8 in the preliminary reading. Consumer sentiment is still down from an 84.1 reading in April. The consensus expected the Consumer Sentiment Index to fall to 81.4. The Current Conditions Index fell to 94.5 in the final May reading from 95.1 in the preliminary reading. The Consumer Expectations Index increased to 73.7 from 73.2.
On Monday, the ISM Index for May and April Construction Spending will be reported at 10:00 ET

"S&P 500 +4.1% YTD
"Dow Jones Industrial Average +0.9% YTD
"Nasdaq Composite +1.6% YTD
"Russell 2000 -2.4% YTD
Week in Review: Stocks Climb Through Holiday-Shortened Week

On Tuesday, the stock market picked up where it left off Friday, riding the outperformance of the small-cap and momentum stocks to broad-based gains. In turn, a strong showing from the financial sector and continued strength in the transport stocks carried the S&P 500 (+0.6%) and Dow Jones Transportation Average to new record highs. The bulk of the gains were achieved shortly after the opening bell. They followed on the heels of a generally positive showing from foreign markets for the two-day period that included the Memorial Day holiday in the US. That showing was underpinned by a seeming hint from ECB President Draghi that the central bank will be easing monetary policy soon and the Ukraine presidential election, which went the way of anti-separatist candidate Petro Poroshenko.

The major averages endured a quiet Wednesday session that had the S&P 500 confined to a seven-point range. The benchmark index shed 0.1%, while the Dow Jones Industrial Average (-0.3%) and Nasdaq Composite (-0.3%) followed not far behind. Small caps, however, saw some additional weakness as the Russell 2000 lost 0.5%. All in all, it is worth pointing out that the lack of aggressive selling or buying followed four consecutive advances that sent the S&P 500 higher by 2.1%. Furthermore, there was no concerted leadership as the top-weighted sectors ended the day in the red. On that note, consumer discretionary (-0.1%), financials (-0.3%), health care (-0.3%), and technology (-0.3%) all struggled to keep pace with the S&P 500.

Equity indices ended the Thursday session on an upbeat note despite receiving some disappointing data ahead of the open. The S&P 500 settled higher by 0.5% with nine sectors registering gains, while the Dow Jones Industrial Average (+0.4%) underperformed throughout the trading day. Shortly before the open, the second revision to Q1 GDP revealed a 1.0% contraction, while the consensus expected a smaller decline of 0.5%. Interestingly, the subpar report led to just a brief stumble in the futures market, which recovered swiftly. That recovery may have been aided by the initial claims report, which suggested the labor market remains on solid ground. Even though almost all sectors finished in the green, there was no concerted leadership among the top-weighted sectors once again. Of the four largest groups, health care (+0.8%) and technology (+0.7%) displayed strength throughout the session, while consumer discretionary (+0.4%) and financials (+0.2%) joined the party in the late afternoon.