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June 05, 2006 at 08:00 PM
May was the cruelest month for U.S. stock investors.
The major equity indices took it on the chin as inflation and high oil prices, among other factors, weighed heavily on investor sentiment. All style categories posted losses for May, with small-cap growth portfolios doing the worst, shedding 6.2% of their value. Meanwhile, large-cap value suffered the least, down 2.6%. The S&P 500 lost 3.1% (on a price return basis) for the month.
“In May, value-oriented and larger-cap companies had the least declines, while growth style and smaller-cap companies were at the bottom of the rankings, as investors shifted to more stable companies,” said Standard & Poor’s mutual fund strategist Rosanne Pane. “In down months, there is also a focus on value stocks, with expectations that they have less downside risk relative to growth stocks that may be aggressively valued.”
The average equity fund dropped 4.2% in May. “It was pretty much a bad month all around,” said Sam Stovall, Standard & Poor’s chief investment strategist. “Thank goodness there are 12 months in a year, not one.”
Stovall warns that historically, a bloody May can spill over onto the next month, when the “June swoon” can set in. In the 10 worst May market performances since 1945, the S&P 500 declined an average of 1.21% the following June.
Worse, Stovall added, the mid-term election year is historically the weakest of the four-year presidential cycle. The market gain is historically about 25% that of the strongest year in the cycle — the third year. The second and third quarters of Year 2 have fallen an average of 2% and 2.2%, respectively, since 1945, he added. “So far this pattern is playing out,” Stovall said. “It was a positive first quarter, but through May 31, we are down about 2.2% in the second quarter.”
