U.S.-Stock Funds Avoided the Bear

It was a lot of suffering, but not much of a result.

Last month was a prime example of the old advice that long-term investors should avoid worrying about day-to-day fluctuations in the market. Stocks fell for most of May, as companies issued profit warnings in response to the impact of inflation. The S&P 500 Index is almost in a bear market, defined as a 20% drop from its high.

But bargain-hunters rushed in as the month ended, saving the performance of major indexes — ending largely unchanged for the month. According to Refinitiv Lipper data, the average US stock fund fell 0.02% for the month, leaving an average annual decline of 13.9%. (Stocks have continued their volatile path so far in June, with the market plunging on Friday.)

International equity funds rose 1.3% in May, but are down 13.1% this year, similar to the decline of funds in the US.

“When will the pain stop?” Lauren Goodwin, economist and portfolio strategist at New York Life Investments, asks. “We won’t feel confident until inflation and interest rate expectations have peaked, and we still believe such a top is still a few months away.” Like several other strategists, she says this is not the time to get out of stocks.

However, Scott Knapp, chief market strategist at CUNA Mutual Group, said, “The new data is adding to expectations of a more aggressive Fed and the markets are reacting. The US economy in general and the labor market in particular are still in a state of overheating. Investors are getting back on the defensive.”


Fund performance May 2022, total return by fund type.

Bond funds rose slightly in May. Funds tied to medium-term, investment-grade debt (the most common type of fixed-income fund) are up 0.3% but have fallen 9.2% so far.

Brad McMillan, chief investment officer at Commonwealth Financial Network, said: “Markets stabilized in May after one of the worst months since the start of the pandemic. “While it hasn’t been a great month, after a bad start to the year, any improvement is welcome.”

Mr. Power is an editor for the Wall Street Journal in South Brunswick, NJ Email him at william.power@wsj.com.

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Edmund DeMarche

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