May was a strange month. The Federal Reserve floated a trial balloon on an interest rate hike in June through the Minutes of its last policy meeting. But, stocks and oil rallied after that. In the end, US stocks and crude oil outperformed most other assets during the month of May 2016. Emerging market stocks suffered a negative month (-3.7%) due to the slide in stocks in Brazil (-13.6%) and Russia (-6.5%). China too was in the red (-0.8%). India was the exception (2.3%). All these returns are based on the performance of the respective Morgan Stanley Capital International (MSCI) indices in US dollars. So, currency effects have played a role too. S&P 500 stocks were up 1.8% and MSCI Eurozone stocks were mostly flat.
Emerging market bonds were also largely unchanged (-0.3%) in May. US bonds were flat but Eurozone government bonds were down 2.0% and that could be due to the depreciation of the Euro vs. US dollar in May.
WTI crude oil went up nearly 7% during the month whereas gold declined 6.0%, presumably because of the impending Fed tightening that made the US dollar more attractive. But, quite why it did not dent the relative attractiveness of overvalued US stocks is a puzzle. Commodities, largely led by oil, were up more than 2% in the month. Overall, it was a strange month with investors sticking to the principle of buying US stocks no matter what happens to fundamentals.