May was a rough month for financial and commodity markets—the worst, in fact, since September 2011. Most of the major asset classes slumped last month. The main exception: U.S. Treasuries, which buoyed the Barclays Aggregate Bond Index. Inflation-indexed Treasuries in particular performed handsomely, jumping 1.7% in May. Otherwise, red ink in varying degrees dominated.
Thanks to a surge in the dollar last month, foreign stocks and bonds in unhedged dollar terms took an usually big hit. The euro crisis inflicted heavy damage on the European-company laden MSCI EAFE, which suffered it’s worst monthly decline in two years in May: -11.5%.
The market-weighted Global Market Index (a passively allocated benchmark of all the major asset classes) retreated by 5.3% last month—it’s worst month since last September. GMI is still up for the year so far, ahead by 1.5% through the end of May. But in a world worried about the end game for the euro, it’s rank speculation at this point to assume how the numbers will wind up for the full year.
Meantime, the sharp decline in oil prices takes some of the sting out of all the red ink in terms of looking ahead in economic terms. Crude oil (West Texas Intermediate) fell a hefty 17.5% in May—its biggest monthly drop since the financial crisis was raging in December 2008. Mark Hulbertconsiders the upside for the economy, advising that lower energy prices may translate into a defacto stimulus for growth.
Perhaps, but if the price decline in oil reflects a drop in demand, that’s a sign of weakness. Meantime, another month like May for asset prices and the damage to consumer sentiment may offset any payoff from lower energy prices.