The economy has added over a million jobs in the first five months of 2018, with the unemployment rate currently at 3.8 percent. For the first time in decades, there are more job openings than unemployed Americans who can fill them. Inflation is currently close to the Federal Reserve’s target. Both of these factors support the strong possibility of the Federal Reserve continuing
to raise rates.
The strong economic backdrop enabled the S&P 500 to post a solid May return of 2.41 percent, despite trade uncertainties. First quarter corporate earnings grew at the fastest pace in nearly seven years while consumer confidence is near a 20 year high.
Broad based strength propelled information technology, which continues to be the strategy to which our long/short equity managers are most exposed, to the top sector return of more than 7 percent.
Event driven was the top performing strategy, benefitting from news on one of
the most widely held names. The semiconductor company received positive news that the China Ministry of Commerce might be accelerating its review of the merger transaction, which helped drive the stock nearly 9 percent higher.
Relative value performance was flat for the month. Volatility oriented strategies
benefitted from the slight increase in volatility, while credit oriented strategies had offsetting factors leading to muted returns. Interest rates declined but credit spreads widened by a similar amount.
Macro strategies were the weakest performing as several asset classes reversed their recent trends. Interest rates moved lower, the price of oil dropped and foreign equities declined. And continuing concerns about a slowdown in the U.K. and Eurozone economies led to another month of negative returns for the respective currencies.