U.S. Stocks Churned Higher in May With Economy in Slow Recovery

Not so bad, considering.

A month that began with investors blindsided by a global rout in sovereign debt and a selloff in high-flying equities ended with stocks near all-time highs.

The Standard & Poor’s 500 Index climbed 1.1 percent in May, historically the second-worst month for American equities. Treasuries capped the period with their first weekly gain since April 17, while the dollar rebounded 2.3 percent in May after halting a string of nine straight advances.

Stocks rose as data indicated the economy was settling into a moderate pace of growth after a first-quarter slump, with the Federal Reserve signaling any increase in borrowing costs would be shallow and gradual. Equities also got a boost from a surprise gain in profits and a record $214 billion of announced acquisitions.

“We were just a little bit too pessimistic,” Karyn Cavanaugh, the New York-based senior market strategist at Voya Investment Management LLC, said in a phone interview. Voya oversees $215 billion. “That’s why the market has been grinding higher. There was a lot of doom and gloom, especially in the first quarter.”

The S&P 500 reached a record May 21, while the Dow Jones Industrial Average and the Nasdaq Composite Index also set fresh highs, even as equities bounced in the narrowest trading range in eight months on the weakest volume this year.

Churned Higher

Equities churned higher as reports from hiring to housing indicated the economy was recovering from a first-quarter slowdown, though not fast enough to warrant higher rates any time soon. Meanwhile, S&P 500 companies, which were forecast at the start of May to deliver the first decline in quarterly earnings since 2009, managed to eke out a profit.

Minutes of the central bank’s April meeting signaled that an interest-rate boost in June was unlikely, and Fed Chair Janet Yellen separately said that while she anticipates raising borrowing costs this year, any further increases would be gradual.

The Fed statements and weaker-than-estimated readings on inflation helped bond markets stabilize after a three-week rout had erased more than $400 billion from fixed-income markets.

Concern about the strength of the economy pressured stocks on the last day of the month, with the S&P 500 slipping 0.9 percent, as data raised concern the slowdown persisted past the first quarter. Anxiety over the standoff in Greece’s debt crisis also reignited.

Data Implications

“I think in the market there is kind of a continual theme here of the market struggling to be able to sustain anything either up or down,” said Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management Inc., which oversees $347 billion. “It’s been a very narrow range here since last fall. It has broken out to marginal new highs along the way, but it hasn’t really been able to sustain an advance by doing so.”

Volatility in equities eased in May, with the Chicago Board Options Exchange Volatility Index sliding 4.9 percent. The gauge known as the VIX fell to its lowest level this year on May 21.

The S&P 500 delivered its best month since February in a period that has seen the index drop 0.1 percent on average in data going back to 1928, the second-worst performance after September.

Eight of the index’s main groups advanced, led by gains of at least 2 percent among technology and health-care shares.

Record Deals

Tech was at the center of record acquisition activity, according to data compiled by Bloomberg. Broadcom Corp. rallied 29 percent, the most in the S&P 500, after agreeing to be bought for $37 billion by chipmaker Avago Technologies Ltd. Altera Corp. soared 17 percent on reports it is close to being purchased by Intel Corp. for about $15 billion.

Time Warner Cable Inc. jumped 16 percent after Charter Communications Inc. struck a $79 billion deal to buy the company.

Transportation companies dropped the most of 24 industry groups in the S&P 500 Index this month as airlines entered a bear market and railroads fell. The Dow Jones Transportation Average lost 3.4 percent to end the month at the lowest level since October.