As May began, US equity markets seemed set to pause at their recent highs, or even to fall back a bit. Economic data were mixed, with employment reports showing some weakness, and price indices showing possible signs of incipient inflation. Increases in commodity prices, in particular, raised concerns in some circles that they might represent a trend that would force the Federal Reserve to tighten monetary policy earlier than previously anticipated. Various Federal Reserve officials made comments reducing fears that the central bank might act swiftly, but a couple made remarks suggesting a subtle shift in tone toward “thinking about thinking about” raising rates. Erratic price movements in some more speculative stocks, along with cryptocurrencies, also seemed to some observers to be a sign that recent momentum in those portions of the market has run its course, at least for now. Despite the noise and cross-currents, the S&P 500 index gained +0.70% for the month. The gain was far from uniform, though – value stocks advanced, while growth stocks fell. The Mid-cap 400 index eked out a gain of 0.20%, and the Small-cap 600 index advanced by +2.08%. [Index returns: Standard and Poors]

Global stocks had a somewhat better month, with the MSCI EAFE international equity index returning +2.08% in local currencies. The dollar gained a bit, to 109.83 yen, from 109.33 at the end of April, but it fell sharply against European currencies. As trading closed for the holiday weekend, the dollar stood at $1.2194 against the euro and $1.4188 against the pound Sterling, notably weaker than its April 30 prices of $1.2030 per euro and $1.4188 per pound. EAFE returned +3.26% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

Partly on the strength of comments from Federal Reserve officials, interest rates actually eased a bit, in spite of the month’s price data. The two-year Treasury note was priced to yield 0.14% at the end of May, compared to 0.16% a month earlier. The ten-year yield fell to 1.58%, from 1.65% at the end of April. The fall in yields corresponded to a tick upward in bond prices, and the Bloomberg Barclays US Aggregate bond index returned +0.33% for the month. [Index returns: Bloomberg; Bond yields, US Treasury]

The US stock market continued to exhibit an optimistic tone in April. Economic indicators, including corporate earnings reports, were mostly favorable, and the news concerning progress toward curbing further spread of COVID-19 and reopening the economy was generally, although not uniformly, good. The near-term effects of the recent COVID relief legislation seem to be salutary, and while some market participants and economists have expressed concern that the longer-term effects may be inflationary, the Federal Reserve has continued to signal, and to execute, an accommodative monetary policy. News reports that the Administration is contemplating proposing a large increase in capital gains taxes for the wealthiest taxpayers excited significant comment, but had relatively little effect on the market. The S&P 500 touched record highs, and even though it eased a bit at the end of the month, it returned +5.34% for April. Smaller stocks also advanced, though not quite so strongly. The Mid-cap 400 index returned +4.50%, and the Small-cap 600 index returned +2.04%. [Index returns: Standard and Poors]

Global equities also finished a bit higher, but lagged their US counterparts, partly because of somewhat more tepid economic recoveries and slower progress against the pandemic – particularly in India, where the situation has grown grave. The MSCI EAFE international equity index returned +1.26% in local currencies. The US dollar gave ground, easing to 109.33 yen from 110.61 at the end of March. It also weakened to $1.2030 against the euro and $1.3878 to the pound Sterling, from March 31 levels of $1.1743 and $1.3795, respectively. EAFE returned +3.01% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

Long-term interest rates eased a bit during the month, reinforced by accommodative action and language after the meeting of the Federal Open Market Committee toward the end of the month. The yield on the two-year US Treasury note stayed unchanged at 0.16%, but the ten-year yield slipped to 1.65%, from 1.74% at the end of March. The Bloomberg Barclays Core US Aggregate Bond Index returned +0.79% for the month. [Index returns: Bloomberg; yields: US Treasury]

The US stock market initially pulled back from the strong gains it made in the final stretch of 2020, but then stabilized. Investors shrugged off the disorderliness of the transition to the new Administration, including the violent assault on the US Capitol on January 6. They seemed to focus instead on prospects for additional fiscal stimulus, and indications of progress in vaccinating more of the US population against SARS-Cov-2. The market reached a plateau around the inauguration, but in the last week of January, unusually active trading in a number of low-priced stocks, particularly GameStop (GME), introduced a surprising level of volatility. Stocks gained in February and March, as investors expressed hope for a strong economic recovery in coming months, although many also expressed concerns of possible increases in inflation on the horizon. Interest rates rose sharply, particularly at longer maturities. The result was that shares of a number of large, fast-growing companies — mostly in technology and related areas — that had enjoyed a long period of upward momentum faltered, while more cyclical, value-oriented issues, particularly in finance and energy, performed very strongly. Because of the unusual divergence in performance across sectors and investment styles, the market may have seemed weak to some investors, but in fact the S&P 500 index returned +6.17% the quarter, closing at a record level. Smaller stocks did even better, particularly in January and February. The Mid-cap 400 returned +13.47% for the quarter, and the Small-cap 600 +18.24%. [Index returns: Standard & Poors]

International stocks also advanced strongly, as the MSCI EAFE international equity index returned +7.59% in local currencies. A strengthening in the US dollar accompanied the rise in interest rates: The dollar rose to 110.61 yen, from 103.19 at the end of December. It also strengthened to $1.1743 against the euro, from a December 31 level of $1.2230. It slipped a little, to $1.3795 against the pound Sterling, from $1.3662 three months earlier. With the currency movements, EAFE returned +3.48% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

The rise in interest rates was particularly pronounced at longer maturities. While that was favorable for shares of banks, it caused the Bloomberg Barclays US Aggregate Bond index to fall by –3.37% for the quarter. The yield on the two-year Treasury ended the quarter at 0.16%, up from 0.13% at December 31. The ten-year yield rose to 1.74%, from 0.93%, a continuation of the recent steepening of the yield curve. [Index returns: Bloomberg; bond yields: US Treasury]

Equity markets continued to advance during March, but the tone of the market shifted dramatically. As longer-term interest rates ticked upward, shares of a number of large, fast-growing companies – mostly in technology and related areas – that had enjoyed a long period of upward momentum faltered. Investors expressed hope for a strong economic recovery in coming months, while many also expressed concerns of possible increases in inflation on the horizon. Accordingly, more cyclical, value-oriented issues, particularly in finance and energy, performed very strongly. Because of the unusual divergence in performance across sectors and investment styles, the market may have seemed weak to some investors, but in fact the S&P 500 index returned +4.38% for the month. The Mid-cap 400 index returned +4.67%, and the Small-cap 600 +3.33%. [Index returns: Standard and Poors]

The stock market advance was once again global. The MSCI EAFE international equity index returned +5.26% in local currencies. However, US dollar investors did not fare quite that well, as a strengthening in the US dollar accompanied the rise in interest rates. The dollar advanced to 110.61 yen, from 106.64 at the end of February. It also advanced to $1.1743 against the euro and $1.3795 against the pound Sterling, from month-earlier levels of $1.2093 and $1.3947, respectively. With the currency movement, EAFE returned +2.30% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

The rise in interest rates was particularly pronounced at longer maturities, which, while favorable for shares of banks, caused the Bloomberg Barclays US Aggregate Bond index to fall by -1.25%. The yield on the two-year Treasury inched up to 0.16%, from 0.14% at the end of February, but the ten-year yield rose to 1.74%, from 1.44% a month earlier. [Index return: Bloomberg; Treasury yields: US Treasury]

The US stock market opened February with a sharp rebound from the slide with which it ended January, advancing toward record high levels around the middle of the month. Optimism regarding the increased deployment of COVID-19 vaccines, expectations for the large fiscal relief package as it began to work its way through Congress, and signals from the Federal Reserve regarding continued monetary accommodation all contributed to the rise. After mid-February, however, long-term interest rates jumped as some investors became increasingly concerned that the large fiscal and monetary stimulus may prove inflationary. That change, along with a renewed bout of volatility in some of the same speculative stocks that had run up in January, halted, and to an extent reversed, the market’s rise. Even so, the S&P 500 index returned +2.76% for February. Smaller stocks were quite a bit stronger still: the Midcap 400 index returned +6.80%, and the Small-cap 600 +7.65%. [Index returns: Standard and Poors]

International stocks also advanced; the MSCI EAFE international equity index returned +2.62% in local currencies for the month. The rise in US interest rates gave the dollar a bit of strength against many, although not all, other currencies. The dollar strengthened to 106.64 yen, from 104.64 at the end of January. It also strengthened to $1.2093 against the euro, from $1.2135 a month earlier, but it eased to a level of $1.3947 to the pound Sterling, compared to $1.3723 on January 31. EAFE returned +2.24% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

Because of the sharp rise in longer-term rates, bonds performed unusually poorly in February. While the yield on the two-year Treasury only edged up to 0.14%, from 0.11% at the end of January, the ten-year yield jumped to 1.46%, from 1.11% a month earlier. The Bloomberg Barclays US Aggregate Bond index returned -1.44% for the month. [Index returns: Bloomberg; bond yields: US Treasury]

In the first few days of 2021, the US stock market pulled back a bit from the strong gains it had made in the final stretch of 2020. It then seemed to find its footing. Investors shrugged off the unusual disorderliness of the transition to the new Administration, including the violent assault on the US Capitol on January 6. Market participants seemed to focus instead on prospects for additional fiscal stimulus, and indications of progress in vaccinating more of the US population against SARS-Cov-2. The markets stabilized, reaching a plateau around the time of the inauguration of the new President. In the last week of January, unusually active trading in a number of low-priced stocks, particularly GameStop (GME), introduced a surprising level of volatility into the stock market, and news reports indicated that the action required some large funds to sell some of their most liquid holdings. The stock market, and especially large-capitalization stocks, fell back in the final few days of January. Overall, the S&P 500 lost -1.01% for the month. Smaller stocks performed much better: The Mid-cap 400 index returned +1.50%, and the Small-cap 600 returned +6.29%. [Index returns: Standard and Poors]

Global markets were also reasonably steady, although a little soft. The MSCI EAFE international equity index returned -0.38% for the month. The US dollar, which had been weak in recent months, regained a bit of strength, rising to 104.64 yen at the end of January, from 103.19 at the end of December, and strengthening to $1.2135 per euro, from $1.2230. The dollar eased a bit, to $1.3723, against the pound Sterling. It had traded at $1.3662 to the pound a month earlier. EAFE returned -1.07% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

With increased fiscal stimulus on the horizon, longer-term interest rates rose a bit, but continued accommodation by the Federal Reserve kept short rates low. The result was a steeper yield curve. The yield on the two-year US Treasury note ended January at 0.11%, compared to 0.13% at the end of December. The ten-year yield, in contrast, rose to 1.11% at the end of the month, from 0.93% a month earlier. The increase in rates pushed bond prices lower, and the Bloomberg Barclays US Aggregate Bond index returned -0.72% for the month. [Index returns: Bloomberg; Treasury yields: US Treasury]