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The Beacon
market spotlight | monthly review

Monthly Review

The Federal Reserve’s pronouncement that negative economic returns in the first quarter were transitory may be proving accurate as a few economic indicators are gaining momentum early in Q2. May began with weak economic news from the first quarter, which may have driven positive market gains with investors presuming that a weak economy would mean no imminent interest rate hike. However, as good economic news made headlines toward the end of the month, the possibility of an interest rate increase happening sooner rather than later may have prompted significant sell-offs. Nevertheless, all the major indexes closed ahead of April, led by the Nasdaq and the Russell 2000. Treasuries closed about 8 bps in front of April’s closing yields.

Global markets were mixed amid frustration over whether Greece will reach an accord with its creditors, market volatility in China, and Q1 contraction in several countries’ gross domestic product.

Crude oil remained around $60 per barrel–roughly the same as April. Gold closed the month at $1,190.50, about $7 an ounce ahead of April. The dollar continued its strong performance in May.

Market/Index 2014]
As of
DJIA 17823.07 17840.52 18010.68 0.95% 1.05%
NASDAQ 4736.05 4941.42 5070.03 2.60% 7.05%
S&P 500 2058.90 2085.51 2107.39 1.05% 2.36%
Russell 2000 1204.70 1220.12 1246.53 2.16% 3.47%
Global Dow 2501.66 2601.33 2586.18 -0.58% 3.38%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 2.17% 2.05% 2.13% 8 bps 14 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

The Month In Review

  • “We’re in the money, we’re in the money” . . .well not really, but the Treasury Department reported government receipts of $471.8 billion in April–an all-time high–creating a surplus of over $156 billion, which is the largest surplus in the last seven years. Of course, April is generally the biggest tax month of the year, with the bulk of the government’s receipts coming from individual income taxes ($288 billion). Nevertheless, the deficit through the first seven months of the budget ($282.8 billion) is about 7.7% lower compared to this time last year.
  • The U.S. economy actually contracted 0.7% during 2015’s first quarter, contrary to the advance estimate of plus 0.2%. That compares with a 2.2% rise in Q4 2014. Contributing factors include harsh weather, a strengthening dollar, disruptions in West Coast port operations, and lower oil prices.
  • In the minutes from its May meeting, the Federal Open Market Committee (FOMC) did not see an interest rate hike for June, although the topic will now be considered at every meeting. Driven by data, a rate hike will likely depend on continued employment growth and increasing inflationary pressure. Federal Reserve Chair Janet Yellen essentially echoed the “wait and see” sentiments of the FOMC in her latest speech, confirming that the economy is still soft, but is slowly gathering momentum, likely warranting a rate hike at some point this year.
  • Inflation is an important factor in determining whether (and when) the Federal Reserve will raise interest rates, and while the overall Consumer Price Index rose a seemingly scant 0.1%, core readings were up 0.3% for all items less food and energy.
  • Despite the upward inflationary trend, consumer spending was effectively level in April. Advance estimates of U.S. retail and food services sales were $436.8 billion, virtually unchanged from the previous month, reflective of weakness in sales for department stores, food and beverage stores, and electronic and appliance stores.
  • While not overwhelming, the employment report allowed for cautious optimism as the U.S. Bureau of Labor Statistics reported 223,000 new jobs were created in April–an increase of 138,000 new jobs compared to a weak March. But the number of employees voluntarily leaving their jobs increased by about 100,000 compared to February, possibly signaling optimism that better jobs are out there for the taking.
  • Other economic news of note during May saw housing prices and new home sales increase, while sales of existing homes dropped in April. Initial claims for unemployment insurance rose toward the close of May, but the four-week average is still lower than last month. The national average retail regular gasoline price increased to $2.744 per gallon on May 25, 2015. And consumer sentiment, as measured by the University of Michigan’s Index, declined to 90.7, a precipitous drop from April’s 95.9 reading, although an uptick from a mid-May low of 88.6.
  • Latest reports in May show the U.S. trade deficit jumped to $51.4 billion in March–the largest since October 2008. A stronger dollar coupled with the resolution of the West Coast port strike in mid-March helped facilitate surging imports. The gap with China grew from $22.5 billion to $31.2 billion in March and to $7.1 billion vs. $4.2 billion for Japan.

  • The news was not all good for U.S. businesses and manufacturers. Prices received by domestic producers fell 0.4% in April according to the U.S. Bureau of Labor Statistics Producer Price Index. The Federal Reserve’s index of industrial production decreased 0.3% in April for its fifth consecutive monthly loss.

Eye on the Month Ahead

Investors will be watching inflation, jobs, and business production as key factors considered by the Federal Reserve in deciding whether to raise interest rates. As for the U.S. dollar, will it continue its strong showing as we enter into the summer?

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes) and Barron’s (S&P 2014 total return); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/ Market Data (oil spot price, WTI Cushing, OK); (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.

did you know?

“Sell in May and go away” isn’t always the best strategy, there is the potential to miss out on upsides that come with a bull market. Below are the summer returns for the S&P 500 over the past 3 years.

May – September 2014 +7.12%

May – September 2013 +9.95%

May – September 2012 +1.02%

bright ideas

Financial Fireworks

Don’t Let Your Financial Strategy “Blow Up” Before Retirement

It’s official: summer is here! With the Forth of July just around the corner, it’s time for cookouts, road trips and relaxation, and perhaps a few planned firework festivities. In addition to sunscreen, bug spray and plenty of water, setting a mechanical investment strategy can be a key protective ingredient to avoid getting burnt with interest-rate jitters or market speculation this summer. Before your pack your bags and set your investments to “vacation mode,” consider the checks and balances that are in place while you are away surrounding your investable assets.

Remove Emotion

Despite the old Wall Street adage “Sell in May – Go Away,” the S&P 500 saw 100 point + climbs each of the last three years, and is off to a strong start again for 2015 with all major indices coming in ahead of April. This is one of many examples illustrating that media hype and market timing are largely ineffective. There is no consistency in human emotion. Investing is a science, not a state of mind.

There are many types of emotion that can lead to buying high and selling low. Here are a quick few to consider:

  • Fear: Whether you’ve experienced major losses in the past or are overly concerned with dramatic losses in your portfolio, fear is one of the leading factors behind emotional investing. These feelings may be a sign to reevaluate your current risk profile for your investments.

  • Greed: Greed can ride the coattails of fear for those who’ve experienced losses looking to quickly make up for lost time, or from any number of outside factors. Seeing double-digit market gains in the headlines may also trigger a need to participate in this level of growth, without realizing the risk involved to get there.

  • Recency bias: As humans, we tend to give greater importance to memories and experiences from recent history. We remember which stock or sector did well last week, last month or last year, and the timeliness of the occurrence can tend to outweigh the historical or long-term significance. In reviewing equity sector performance over the past twenty years, we can see how last year’s performers can easily fall to the bottom of the heap, and vice versa. Equal sector allocation is key to avoiding over and underexposure to bubbles in today’s economy.

  • Confirmation bias: You may have already formed an opinion about an investment or the market at large, whether consciously or subconsciously, and are actively seeking out research and sound bites that support your ideas.

Implement a Mechanical Strategy

Beacon Capital Management offers investors a multifaceted approach to help set aside emotion and let the markets go to work through its Beacon Vantage 2.0 portfolios. These portfolios utilize a unique 11-sector equal allocation approach allows for participation in sector rallies through broad diversification while minimizing speculative overexposure to trending markets. Unlike passive indexing strategies that can leave you feeling vulnerable if your investment timelines are not as flexible as those of the market, the mechanical approach of these portfolios includes a signature stop-loss measure to help remove all questions surrounding getting in and getting out of the market with predetermined indicators and technical execution. No matter an investor’s risk profile, Vantage 2.0 is offered in aggressive, balanced and conservative models, giving investors options for growth their portfolio while preserving it for the long-term. To learn more about Beacon’s portfolio options, visit today.

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For more information about the mechanical investment strategy behind Vantage 2.0 portfolios, download our white paper, “Next Generation Investment Strategy Marries Growth & Safety: Mechanical Investing Cuts Emotion from Decision-making” Download the white paper now.



Beacon Capital Management, Inc. is an investment advisory firm registered with the Securities and Exchange Commission. Additional information about Beacon Capital Management is also available on the SEC’s website at under CRD number 120641. Beacon Capital Management only transacts business in states where it is properly registered, or excluded or exempted from registration requirements.

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