For May stocks fell in a straight trajectory and the VIX, a measure of volatility, increased over 40% to end the month at 24.06. The first half of the month was driven by concerns over Europe. But towards the end of the month U.S. economic data provided increasing evidence that the recovery may not be taking hold. The 10-year Treasury note established a new all-time low of 1.59%. As a whole, the SPX for the month ended down -6.01%.
The U.S. Low Volatility Strategy was also down -0.39%* thus out-performing the index by 5.62% for May. One a risk adjusted basis the U.S. Low Volatility Strategy out-performance was 8.25%. This is yet another example of how our Low Volatility Strategy protects against the downside. Even the Barclays Global Aggregate Index, which represents global bond markets, declined by -1.03%.
|Low Volatility Strategy||-0.39%|
|S&P 500 Index||-6.01%|
The investment objective of the SGI U.S. Low Volatility Equity Strategy is to out-perform the SPX with less downside risk over a full market cycle. To achieve this investment objective, the portfolio invests in U.S. equities that historically demonstrate low volatility characteristics and meet our proprietary algorithms and criteria. We know return paths vary over periods of time, which is why we take a long-term approach seeking equity type returns with much less volatile stocks.
The markets quickly went south as economic data in Europe painted a very poor picture. Couple this data with a political stalemate with Greek elections and continued disagreement between European nations on terms/measures for a bailout you have a clear direction – a straight down market.
US economic data did not help matters as Q1 GDP estimates were revised lower to 1.9% suggesting slower growth than previously predicted. U.S. Consumer Confidence fell more than expected to 64.9 and the labor market provided more fuel to the downward spiral of growth prospects with the unemployment rate ticking up to 8.2%.
Keep everyone guessing manufacturing data beat expectations, and retail sales showed that consumer spending had slightly increased between March and April.
Again we ask the question how will Europe navigate the crisis? As they say, “The devil is in the details”.
Keep an eye on the Federal Reserve as many are hoping for ‘uncle Ben’ to bail them out. Also, U.S. economic data are still relevant and could prove to move the U.S. market.