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Standing on Principle

John Gorlow | Jun 09, 2016
Mohammad Ali was the greatest boxer of all time. To me, he was also an early role model for reasons that went far beyond the devastating power of his punch. 
In 1967, when I was eight years old, Ali was stripped of his heavyweight title for refusing to be drafted. Why did he refuse? “For my beliefs,” he said. He made it clear that nothing compared with the principle he was being asked to give up. I loved that, and it sparked my desire to try—sometimes succeeding, sometimes not—to live by my own ideals. 
Ali turned to public speaking, and two years later, as racial tensions flared following the assassination of the Rev. Martin Luther King, I had the chance to hear him at nearby Penn State. He mesmerized me, and many others around the country, by the poetry of his words and sincerity of his convictions. In the speech I heard, he questioned whether racial equality could ever be achieved. His words gave my ten-year-old mind much to think about. 
Fast forward to 1996, when Mohammad Ali stepped out of the darkness to light the Olympic torch at the centennial Olympics in Atlanta. There weren’t many dry eyes in the stadium that night. It wasn’t the athlete who triggered so much emotion, but the man. Like all of us, Mohammad Ali was an imperfect human being with plenty of contradictions in his life. But he taught me what it means to have, and live by, one’s personal convictions. It’s a lesson that I hope to keep practicing all my life. 
May Markets: Mostly Sunshine 
Why do recollections about Mohammad Ali have a place in our May overview? Following Ali’s death, William Rhoden (NYT, June 6, 2016) wrote, “Resilience is more important than being undefeated.” Entering June, investors have learned that lesson perhaps a little too well this year. As markets plunged into deep red territory early in 2016, those who stayed the course looked not only defeated but foolish. But by May, those same investors had experienced the unpredictable resilience of the markets. So yes, I wholeheartedly agree with that quote, both as guidance for living and investing! 
Let’s look at May numbers. In the big picture, foreign markets reversed their two-month gains, while US stocks advanced for the third straight month. 
The S&P 500 returned 1.80% in May, bringing its YTD return to 3.57%. The S&P Small Cap 600 returned 1.66%. It was the fourth month of gains for the index, bringing its YTD return to 5.59%.
International developed markets as measured by the MSCI EAFE index reversed their two-month climb, falling 0.91% and leaving YTD returns -1.1% in the red. 
Emerging markets underperformed developed markets in May, just as they did in April. As measured by the MSCI Emerging Market Index, they posted a broad decline of -3.73%, but returns on the index were up 2.32% YTD.
May returns for domestic and foreign REITs were mixed. US REITs outperformed the S&P 500 index, returning 2.01% in May. Conversely, international REITs returned negative -2.94% in May, underperforming their broad market equity indices.

The 10-year U.S. Treasury Bond closed at 1.84%, up from last month’s 1.83%. The 30-year U.S. Treasury Bond closed at 2.65%, down from last month’s 2.68%. 
In USD, Gold reached $1,300 but declined to close at $1,219.60, down from April’s close of $1,294.90. Oil was volatile, as it crossed $50 per barrel briefly, then closed the month at $48.95, up from last month’s $45.99. The Bloomberg Commodity Total Return index was flat for the month but up 8.76% YTD.
In economic news, the US economy grew at an annualized pace of 0.9% in the first quarter, slightly better than recently predicted. Even so, the pace of growth is slower than the 1.4% pace logged in the final quarter of 2015, and a far cry from the 3.9% in Q3 2015. 
My advice, as always, is to remain diversified, keep a sensible head when other investors flee the market, and check your investment strategy periodically to ensure alignment with your goals and risk tolerance. Remember, resilience wins. 


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