Market Update from CIO Dave Klassen – May 2020

MARKETS

  • Global financial markets continued to move in a positive direction in May after a sharp decline in the first quarter and a rebound in April. The markets remain volatile due to uncertainty around the coronavirus outbreak. The developed and emerging market equity index (MSCI ACWI IMI), increased 4.35% in May and is down -9.16% YTD. The S&P 500, which tracks large cap U.S. stocks, was up 4.76% in May and is down -4.97% YTD. The Russell 2000 Index, which tracks domestic small cap stocks increased 6.51% in May and is down -15.95% YTD. The International developed equity index (MSCI EAFE), increased 4.35% in May and is down -14.26% YTD. The emerging markets index (MSCI EM) increased 0.77% in May and is down -15.96% YTD.
  • In May, longer-term bond yields were mixed; the 30-year U.S. Treasury bond yield increased by 13 bps to 1.41%, the 10-year yield increased by 1 bps to 0.65%, and the 5-year yield decreased by 6 bps to 0.30%.
  • The Barclays Aggregate Index, which is a measure of U.S. Bond prices, increased 0.47% for May and is up 5.47% YTD.

ECONOMIC AND GEOPOLITICAL HEADLINES

  • U.S. gross domestic product (GDP) in the first quarter of 2020 decreased - 5.00%, according to the “Second” estimate released by the Bureau of Economic Analysis. The fourth quarter of 2019 GDP increased 2.1%.
  • The May Non-Manufacturing Purchasing Managers Index (PMI) increased to 45.40% from 41.80% in April, this represents the second consecutive month of contraction in the non-manufacturing sector. This was above expectations of 44%. The May Manufacturing PMI increased to 43.1% from April’s 41.5% also representing a second month of contraction. Per the Institute for Supply Management (ISM), a reading below 50 is considered economic contraction.
  • May non-farm employment increased by 2.5 million jobs, and the unemployment rate declined to 13.3%, as reported by the Bureau of Labor Statistics on June 5th, 2020. In May employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade. Average Hourly Earnings (wages) increased 6.7% year-over-year in May.

PERFORMANCE UPDATES

  • The Equity Fund increased 4.65% in May and declined -10.56% YTD. The Bond Fund increased by 1.56% in May and is up 4.39% YTD. The Stable Value Fund was up 0.14% for May and is up 0.64% YTD. The Northern Trust Global Sustainability Index Fund (GSIF) increased 5.27% for May and declined -6.90% YTD.
  • The Balanced Fund increased 3.17% in May and is down -3.89% YTD. The Target Annuitization Date (TAD) 2020; TAD 2025; TAD 2030; TAD 2035; and TAD 2040 were 0.25%, 2.15%, 3.02%, 3.34% and 3.63% respectively for May and +1.08%, -1.62%,-4.35%,-5.38%,-7.16% YTD.