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 adds, 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 two have fallen an average of 2% and 2.2%, respectively, since 1945, he says. "So far this pattern is playing out," Stovall says. "It was a positive first quarter, but through May 31, we're down about 2.2% in the second quarter."
Stovall attributes the May declines less to concerns over interest rates than to an overreaction to the small rise in the consumer price index on May 11. The S&P 500 fell slightly on May 10 in anticipation of the Federal Reserve's meeting, making it "a non-event day," he says. "Investors are like hyperactive fourth-graders playing musical chairs. They're all trying to outanticipate everybody else."
The market's reaction, Stovall thinks, was a bit overdone. "Those who want to play it safe have to remember that the market has rebounded quite substantially in the fourth quarter of the mid-term election year," he says. Out of all 16 quarters of the Presidential cycle, the fourth quarter of year two, and the first and second quarters of year three, have been the best periods for the S&P 500, on average.
Despite their poor showing in May, small-cap equity funds have excelled on the year-to-date basis. Small-cap value portfolios have risen 7.5%, making it the best performing style category. Large-cap growth funds have done the worst -- with a 0.7% loss year-to-date -- and it is the only group in negative territory through the first five months of the year.
A bruising May notwithstanding, Standard & Poor's Global Investment Policy Committee (IPC) continues to expect full-year gains for the S&P 500 -- an 11% price rise and 12% growth in earnings. The committee anticipates that corporate earnings will get a big boost from an expected 20% advance in profits for the S&P 1500 materials sector, a 17% snap-back for consumer discretionary (vs. a 1% decline last year), and 16% earnings increases for both the energy and telecom services sectors.
For full-year 2006, the IPC projects operating earnings-per-share gains of 18% for mid-cap issues and 19% for small caps, compared with 12% for the large-cap S&P 500. Moreover, IPC sees the greatest profit increase for large-cap growth stocks, with a projected 26% gain on the year.
and their five-year annualized pretax returns through May.
| Fund | Symbol | 5-Year Annualized Pretax Return (%) |
|---|
| ABN AMRO Real Estate N | ARFCX | 20.1 |
| AEW Real Estate A | NRFAX | 20.9 |
| AIM Developing Markets A | GTDDX | 21.4 |
| AIM Energy Inv | FSTEX | 16.7 |
| AIM European Small Company A | ESMAX | 32.1 |
| AIM Gold & Precious Metals Inv | FGLDX | 30.0 |
| AIM International Small Company A | IEGAX | 30.6 |
| AIM Real Estate A | IARAX | 22.9 |
| Adelante US Real Estate Securities Y | LLUYX | 20.1 |
| AllianceBernstein International Value A | ABIAX | 17.8 |
| AllianceBernstein Real Est Invstmnt A | AREAX | 20.2 |
| AllianceBernstein Real Est Invstmnt Instl I | ARIIX | 19.8 |
| Alpine International Real Estate Equity Y | EGLRX | 23.2 |
| Alpine Realty Income & Growth Y | AIGYX | 20.4 |
| Alpine US Real Estate Equity Y | EUEYX | 23.6 |
| Amer Beacon Emerging Market Instl | AEMFX | 20.8 |
| Amer Beacon Small Cap Value PlanAhead | AVPAX | 16.5 |
| Amer Century Emerging Markets Inv | TWMIX | 16.8 |
| Amer Century Global Gold Inv | BGEIX | 33.5 |
| Amer Century Real Estate Inv | REACX | 20.5 |
| Amer Century Sm Company Inv | ASQIX | 16.8 |
| BlackRock Global Resources Inv A | SSGRX | 30.3 |
| BlackRock Intl Opportunities Inv A | BREAX | 19.0 |
| Boston Company International Small Cap | SDISX | 23.3 |
| Boston Company Small Cap Value | STSVX | 17.0 |
| Bridgeway Ultra Small Company | BRUSX | 25.6 |
| Bridgeway Ultra Small Company Market | BRSIX | 22.5 |
| Bruce | BRUFX | 31.3 |
| CGM Focus | CGMFX | 23.1 |
| CGM Realty | CGMRX | 32.1 |
| Cohen & Steers Realty Focus Instl | CSSPX | 21.7 |
| Cohen & Steers Realty Income C | CSCIX | 15.7 |
| Cohen & Steers Realty Shares | CSRSX | 20.6 |
| Cohen & Steers Reatly Shares Instl | CSRIX | 20.7 |
| Columbia Real Estate Equity Z | CREEX | 17.1 |
| Commonwealth Australia New Zealand | CNZLX | 20.0 |
| Consulting Grp Cap Mkts Emerg Mkts Eq Inv | TEMUX | 19.1 |
| DWS Emerging Markets Equity S | SEMGX | 20.1 |
| DWS Gold & Precious Metals S | SCGDX | 33.9 |
| DWS Latin America Equity S | SLAFX | 21.4 |
| Davis Real Estate A | RPFRX | 19.8 |
| Delaware Emerging Markets A | DEMAX | 22.8 |
| Delaware Real Estate Inv Tr A | DPREX | 17.2 |
| Dodge & Cox Intl Stock | DODFX | 15.7 |
| Dreyfus Premier Emerging Markets A | DRFMX | 20.3 |
| Dreyfus Premier Enterprise A | DPMGX | 17.3 |
| Driehaus Emerging Markets Growth | DREGX | 24.9 |
| Driehaus International Discovery | DRIDX | 19.0 |
| EII Realty Securities Instl | EIIRX | 18.1 |
| Eastern European Equity A | VEEEX | 28.4 |
| Eaton Vance Asian Small Companies A | EVASX | 25.9 |
| Eaton Vance Emerging Mkts A | ETEMX | 20.1 |
| Eaton Vance Greater India A | ETGIX | 27.5 |
| Evergreen Emerging Mkts Gr A | EMGAX | 21.7 |
| Evergreen Precious Metals A | EKWAX | 37.3 |
| Excelsior Emerging Markets | UMEMX | 21.0 |
| Excelsior Engy & Natrl Resources | UMESX | 16.1 |
| Excelsior Real Estate | UMREX | 18.2 |
| FBR Small Cap | FBRVX | 19.1 |
| FBR Small Cap Financial | FBRSX | 17.0 |
| Fidelity Advisor Korea A | FAKAX | 25.1 |
| Fidelity Advisor Latin America A | FLTAX | 22.7 |
| Fidelity Advisor Leverged Co Stock A | FLSAX | 23.8 |
| Fidelity Canada | FICDX | 18.9 |
| Fidelity Emerging Market | FEMKX | 21.1 |
| Fidelity Latin America | FLATX | 23.8 |
| Fidelity Real Estate Investment | FRESX | 19.9 |
| Fidelity Select Energy | FSENX | 16.4 |
| Fidelity Select Gold | FSAGX | 28.9 |
| Fidelity Select Industrial Materials | FSDPX | 17.0 |
| Fidelity Select Medical Delivery | FSHCX | 16.1 |
| Fidelity Select Natural Resources | FNARX | 15.7 |
| Fidelity Southeast Asia | FSEAX | 17.6 |
| Fifth Third Micro Cap Value Instl | MXAIX | 17.4 |
| First American Real Estate Securities Y | FARCX | 21.6 |
| First Eagle Global A | SGENX | 17.8 |
| First Eagle Gold A | SGGDX | 36.4 |
| First Eagle Overseas A | SGOVX | 20.0 |
| Forward Emerald Select Banking & Finance A | HSSAX | 17.9 |
| Forward Uniplan Real Estate Investment | FFREX | 17.2 |
| Franklin Gold & Precious Metals A | FKRCX | 25.8 |
| Franklin Real Estate Sec A | FREEX | 17.3 |
| GMO Emerging Markets Quality III | GMASX | 26.0 |
| Gartmore Emerging Markets A | GEGAX | 20.8 |
| Goldman Sachs Emerg Mkts Eq A | GEMAX | 19.6 |
| Goldman Sachs Real Estate Sec A | GREAX | 19.4 |
| Guardian Baillie Gifford Emerging Mkts A | GBEMX | 21.7 |
| Guinness Atkinson Asia Focus | IASMX | 19.1 |
| Hansberger Emerging Markets Instl | HEMGX | 19.6 |
| Harding Loevner Emerging Markets | HLEMX | 21.1 |
| Hodges | HDPMX | 17.2 |
| Hotchkis & Wiley Mid-Cap Value I | HWMIX | 16.1 |
| Hotchkis & Wiley Small Cap Value I | HWSIX | 21.2 |
| ICON Energy | ICENX | 20.6 |
| ICON European Region | ICSEX | 16.2 |
| ICON Materials | ICBMX | 16.0 |
| ING Precious Metals | LEXMX | 31.0 |
| ING Russia A | LETRX | 43.8 |
| Ivy European Opportunities A | IEOAX | 17.7 |
| Ivy Global Natural Res A | IGNAX | 22.3 |
| Ivy Real Estate Securities A | IRSAX | 20.6 |
| J Hancock Real Estate A | JREAX | 17.9 |
| JPMorgan Realty Income I | URTLX | 20.6 |
| JPMorgan US Real Estate A | SUSIX | 20.2 |
| James Advantage Small Cap | JASCX | 17.6 |
| Jennison Natural Resources A | PGNAX | 25.4 |
| Johnson Inv Counsel Realty | | 16.5 |
| Keeley Small Cap Value | KSCVX | 17.3 |
| Kensington Strategic Realty A | KSRAX | 17.2 |
| Kinetics Paradigm | WWNPX | 17.0 |
| Laudus Rosenberg Intl Sm Cap Inv | RISIX | 20.0 |
| Lazard Emerging Markets Open | LZOEX | 22.9 |
| Lazard International Small Cap Open | LZSMX | 16.8 |
| Legg Mason Glbl Tr Emerging Mkts Prim | LMEMX | 20.7 |
| MFS Emerging Markets Equity A | MEMAX | 20.1 |
| MainStay Small Cap Opportunity I | MOPIX | 17.0 |
| Managers Emerging Mkts Equity | MEMEX | 18.9 |
| Managers Real Estate Securities | MRESX | 19.2 |
| Matthews Asian Growth & Income | MACSX | 19.1 |
| Matthews Korea | MAKOX | 30.2 |
| Matthews Pacific Tiger | MAPTX | 18.3 |
| Mellon Emerging Markets M | MEMKX | 20.9 |
| Mercantile Diversified Real Estate Inst | MDVRX | 19.0 |
| Merrill Lynch Developing Capital Markets A | MDDCX | 18.1 |
| Merrill Lynch Latin America C | MCLTX | 23.1 |
| Merrill Lynch Natural Resources A | MDGRX | 19.7 |
| Midas | MIDSX | 35.0 |
| Morgan Stanley Instl Emerging Markets A | MGEMX | 20.7 |
| Morgan Stanley Instl Intl Real Estate A | MSUAX | 26.3 |
| Morgan Stanley Instl Intl Small Cap A | MSISX | 17.3 |
| Morgan Stanley Instl US Real Estate A | MSUSX | 21.1 |
| Morgan Stanley Real Estate B | REFBX | 19.5 |
| Munder Real Estate Eq Invmnt A | MURAX | 19.4 |
| OCM Gold | OCMGX | 34.9 |
| Oakmark Global I | OAKGX | 17.0 |
| Oakmark International Small Cap I | OAKEX | 21.2 |
| Oberweis Micro Cap | OBMCX | 16.5 |
| Old Mutual Heitman REIT Z | OBRTX | 19.8 |
| Oppenheimer Developing Markets A | ODMAX | 23.7 |
| Oppenheimer Gold & Special Minerals A | OPGSX | 30.5 |
| Oppenheimer Intl Small Company A | OSMAX | 25.9 |
| Pacific Advisors Small Cap A | PASMX | 17.5 |
| Pacific Capital Small Cap A | PCSAX | 17.2 |
| Perritt Micro Cap Opportunities | PRCGX | 19.7 |
| Phoenix Insight Emerging Markets N | HEMAX | 18.3 |
| Phoenix Real Estate Sec A | PHRAX | 22.1 |
| Pioneer Emerging Markets A | PEMFX | 21.5 |
| Pioneer Real Estate Shares A | PWREX | 19.9 |
| Polaris Global Value Investor | PGVFX | 16.4 |
| ProFunds Real Estate Ultrasector Inv | REPIX | 19.8 |
| Quant Emerging Markets Ord | QFFOX | 24.4 |
| Quant Foreign Value Ord | QFVOX | 17.5 |
| RS Global Natural Resources | RSNRX | 24.8 |
| RS Partners | RSPFX | 20.4 |
| RS Value | RSVAX | 17.3 |
| RiverSource Emerging Markets A | IDEAX | 18.3 |
| RiverSource Precious Metals A | INPMX | 27.4 |
| Russell Emerging Markets S | REMSX | 20.3 |
| Russell Real Estate Securities S | RRESX | 20.0 |
| Rydex Precious Metals | RYPMX | 20.7 |
| SEI Emerging Markets Equity | SIEMX | 17.9 |
| SSgA Emerging Markets | SSEMX | 21.3 |
| STI Classic Small Cap Value Equity C | STCEX | 16.8 |
| Satuit Capital Management Micro Cap | SATMX | 17.6 |
| Schneider Small Cap Value | SCMVX | 22.9 |
| Seligman Emerging Markets A | SHEMX | 18.6 |
| Strategic Partners Real Estate Securities A | PURAX | 24.0 |
| Stratton Small Cap Value | STSCX | 16.9 |
| T Rowe Price Emerging Europe & Mediterranean | TREMX | 30.8 |
| T Rowe Price Emerging Markets Stock | PRMSX | 20.1 |
| T Rowe Price Latin America | PRLAX | 23.7 |
| T Rowe Price New Asia | PRASX | 16.3 |
| T Rowe Price New Era | PRNEX | 16.4 |
| T Rowe Price Real Estate | TRREX | 21.2 |
| T Rowe Price Small Cap Value | PRSVX | 15.9 |
| TCW Emerging Markets Equities I | TGEMX | 16.9 |
| Templeton Developing Markets A | TEDMX | 20.2 |
| Templeton Instl Emerging Markets | TEEMX | 20.7 |
| Third Avenue Real Estate Value | TAREX | 18.6 |
| Third Millennium Russia A | TMRFX | 34.9 |
| Tocqueville Gold | TGLDX | 36.6 |
| Tocqueville International Value | TIVFX | 16.5 |
| US Global Accolade Eastern European | EUROX | 40.5 |
| US Global Inv Global Resources | PSPFX | 36.4 |
| US Global Inv Gold Shares | USERX | 40.8 |
| US Global Inv World Prec Minerals | UNWPX | 46.8 |
| USAA Emerging Markets | USEMX | 19.0 |
| USAA Precious Metals & Minerals | USAGX | 38.6 |
| Van Eck Global Hard Assets A | GHAAX | 23.9 |
| Van Eck Intl Investors Gold A | INIVX | 39.1 |
| Van Kampen Emerg Mkts A | MSRAX | 20.0 |
| Van Kampen Real Estate Securities A | ACREX | 20.0 |
| Vanguard Emerging Mkts Stock Index | VEIEX | 19.9 |
| Vanguard Energy Inv | VGENX | 22.2 |
| Vanguard Precious Metals and Mining | VGPMX | 34.7 |
| Vanguard REIT Index | VGSIX | 19.1 |
| Wasatch Micro Cap | WMICX | 16.5 |
| Wells Fargo Advtg Asia Pacific Inv | SASPX | 18.7 |
| Wells S&P REIT Index A | WSPAX | 18.1 |
| William Blair Small Cap Growth N | WBSNX | 16.2 |
| iShares Cohen & Steers Realty Majors | ICF | 20.6 |
| iShares DJ US Real Estate Index | IYR | 17.8 |
| iShares MSCI Australia Index | EWA | 20.6 |
| iShares MSCI Austria Index | EWO | 33.1 |
| iShares MSCI Belgium Index | EWK | 18.5 |
| iShares MSCI Brazil Index | EWZ | 23.0 |
| iShares MSCI Canada Index | EWC | 16.1 |
| iShares MSCI Mexico Index | EWW | 19.3 |
| iShares MSCI South Korea Index | EWY | 25.8 |
| n/i numeric investors Small Cap Value | NISVX | 19.6 |
| streetTRACKS DJ Wilshire REIT ETF | RWR | 19.8 |
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