What moved the markets in May?

 

Several positive economic reports in North America helped offset negative sentiment surrounding political turmoil in Washington that could impede the Trump administration’s efforts to pass tax and health care reform. U.S. Treasury yields fell as skepticism mounted about the President’s ability to push through his ‘pro-growth’ policies.

 

Market highlights

 

In Canada, the Bank of Canada kept the overnight rate unchanged at 0.50% and reiterated its concerns about the uncertainties outlined in the U.S. tax and trade policy as well as high domestic household debt levels.

 

Moody’s downgraded the Big Six Canadian banks. The Canadian dollar was impacted by the negative sentiment and touched a 15-month low versus the USD in early May.

 

The S&P/TSX moved down 1.3%, with rallies in the Healthcare, Industrials and Technology sectors of 7.6%, 3.3% and 3.2%, respectively offset by declines in the Energy sector of 4.3%.

 

In the U.S., the S&P 500 closed up 1.4%, with most sectors ending the month in positive territory.

 

Global Developments

 

Economic data out of Europe continues to surprise to the upside.

 

OPEC and non-OPEC countries met during the month and agreed to extend current production cuts until March 2018. Crude oil prices ended the month down just 1.7% at $48.32 per barrel.

 

Gold ended the month at $1272 per oz unchanged from the beginning of the month. The yellow metal held firm near its 2017 highs despite rising probability of a Fed hike at the June meeting.

 

What to expect going forward

 

The major stock markets are up near their highs, which is bullish, but also leaves them at risk for a pullback in the neighborhood of 10%–20%. These corrections and pullbacks have happened many times during the course of the eight-year bull market and are a normal part of the overall bullish process. It is possible the indexes could rise further, but we think the short-term upside potential from here is limited. The fact remains that the indexes have been in bullish form since 2009, which is the overriding consideration that investors should be following. It won’t be a bad idea for investors to be a little more tactical and conservative now, with the idea of becoming more aggressive after a dip, which we expect to see over the next few months