“June, that stuff will just work itself out.” — Johnny Cash

“No, it does not work itself out. People work it out for you and you think it works itself out.” — June Carter

Cash wasn’t king, at least in the month of May.

May was a good month for the stock market. After a dip in April, the Dow Jones went up by 2.6%, the S&P 500 by 5%, and the NASDAQ surged by 7%. International markets also did well, with the EAFE index gaining 4%, and small-cap stocks slightly outpacing large-cap stocks.

Utilities were on fire for the second month in a row, jumping 9%. Tech and Communication Services weren't far behind, each climbing around 7%. The only sector that didn't do well was Energy, which dipped by 0.3%.
Job growth is slowing down a bit, with 152,000 new private sector jobs in May, the lowest since January. Job openings also hit a three-year low. Inflation stayed steady at 3.36% year-over-year, and core inflation dropped to its lowest since May 2021 at 3.61%. The Fed isn't expected to change interest rates in their June meeting.
Manufacturing saw a slight decline, and retail sales were flat compared to the previous month.
The housing market saw fewer sales in April, with new single-family home sales down by 4.7% and existing home sales down by 1.9%. However, the median price for existing homes went up by 3.7%. Gold prices edged up a bit, but crude oil prices dropped, which brought the average gas price down by 8 cents to $3.70 per gallon.

Our take:

Recent data reflects the economy is indicating signs of slowing. Although inflation has come down significantly from the peak, “the last mile” to get to Federal Reserve’s target of 2% has proven to be sticky, so the softer economic data is good news when it comes to the fight against inflation. Expectations are that spending will continue to slow throughout the year, but the consensus is that the economy can avert a recession and the Federal Reserve can begin to lower rates to a neutral level later this year.

The stock market has performed well, primarily due to strong corporate profits despite a relatively high inflation and interest rate environment. With both of these expected to decline over the coming months, we feel this could give a further tailwind to equities. In addition, fixed income should benefit from falling rates.

We know that the rate hikes and inflation have taken a toll on the economy…some industries more than others. As a result, we will be watching for any cracks, such as the level of default rates increasing or continued persistent inflation combined with slowing growth, which is known as stagflation.

We also know from history that volatility tends to pick up in an election year before rallying after the results, with the economy typically being the deciding factor.

Lastly, we continue to follow the geopolitical events, paying special attention to any signs of further escalation which could lead to potential oil shocks. Perhaps the largest potential shock to the global economy remains the possibility of China’s military aggression toward Taiwan.

As things evolve, we will seek to adjust our portfolios accordingly, if necessary.

Equities returned to winning ways in May following a down April that had stunted three straight months of gains in 2024. The Dow Jones Industrial Average rose 2.6% in May, the S&P 500 advanced 5%, and the NASDAQ surged 7%. EAFE gained 4% in May, while Small Caps bested Large Caps by three-tenths of a percentage point.

Utilities was the best-performing sector for the second straight month, jumping 9% in May. Technology and Communication Services followed with respective gains of 7.1% and 7%. The only negative sector in May was Energy, which slipped 0.3%.

Sell in May and Go Away?

You may have heard of the old stock market adage of “Sell in May and Go Away” which refers to an investing strategy that suggests pulling investments out of the market in May in order to miss the seasonally weaker stock market performance that occurs between May and October.

But to what extent is this adage actually true? And is being uninvested during this period beneficial or harmful over the long-term? We looked at the data behind “Sell in May and Go Away” to find out.

Most months between May and October have historically delivered lower stock market returns versus those between November and April. Selling in May and moving to cash for six months each year produced significantly lower annualized returns over the long run as a result of less time in the market. The chart below shows that an investor in the S&P 500 would have missed out on nearly 20% of performance by utilizing this strategy over the course of the nearly the last 75 years, or about 1.37% of annualized return.

J.P Morgan Asset Management further illustrates the benefit of time in the market vs. market timing. The following slide shows that if you invested $10,000 in the S&P 500 on January 1st of 2004 that it would have grown to $63,637 twenty years later by remaining invested. However, if you missed just 10 of the best days of market performance during these 20 years, you would have earned less than half and ended up with $29,154! Of course, past performance doesn’t guarantee future performance.

The Economic Data Rundown

Employment

Private payrolls increased by 152,000 jobs in May—the fewest since January and well below the average of 194,000 over the past year—after rising by a downwardly revised 188,000 in April, the ADP Employment report showed. Economists polled by Reuters had forecast private employment increasing by 175,000 last month.

The report was the latest indication that employment growth is moderating, but the job market is not fully buckling under the weight of 525 basis points of interest rate increases from the Federal Reserve since March 2022, although other data has shown the job market is coming into better balance.

On Tuesday, the Labor Department reported job openings fell in April to the fewest in more than three years, and the ratio of vacancies to the number of unemployed persons had returned to levels seen prior to the COVID-19 pandemic outbreak in early 2020.

Consumers and Inflation

April’s US inflation figure came in at 3.36%, marking the tenth consecutive month that Year-over-Year (YoY) inflation has hovered in the 3 to 4 percent range. Core Inflation dropped to 3.61%, the lowest YoY rate since May 2021. The monthly US Consumer Price Index rose 0.31% in April, and US Personal Spending posted a small monthly increase of 0.20%.

The Fed meets next week on June 11-12 and is expected to keep the benchmark overnight lending rate steady in the target range of 5.25%-to-5.50%, where it has been since July. Policymakers will also update their projections for economic growth, unemployment and inflation, and will pencil in what they see as the appropriate policy rate for the near and longer term.

Production and Sales

After posting an expansion reading in March for the first time since October 2022, the US ISM Manufacturing PMI slipped another 0.5 points further into contraction territory in May to 48.70. The YoY US Producer Price Index for April came in at 2.17%, the first time above 2% since April 2023 and third consecutive monthly increase, while April US Retail and Food Services Sales were unchanged Month-over-Month (MoM).

Housing

US New Single-Family Home Sales fell 4.7% in April, while US Existing Home Sales slipped 1.9% MoM. Despite the reduced housing demand, the Median Sales Price of Existing Homes increased 3.7% in April to $407,600. Mortgage rates fell slightly in May; as of May 30th, the 15-year Mortgage Rate lowered to 6.36% and the 30-year came in just above 7% at 7.03%.

Commodities

The price of Gold rose slightly in May to $2,348.30 per ounce as of May 31st following several surges in 2024. Crude oil prices fell MoM; as of May 28th, the price of WTI slipped 3.1% to $80.90 per barrel while Brent recorded a 7.8% downturn to clock in at $81.34 per barrel. As a result, the average price of gas fell 8 cents to $3.70 per gallon.

As always, don’t hesitate to contact us if you have any questions about what impact, if any, this may have on your financial plan.

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This newsletter was prepared by YCharts with added commentary.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk.

The economic forecasts set forth in this material may not develop as predicted, and there can be no guarantee that strategies promoted will be successful.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly. The fast price swings in commodities may result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors. Precious metal investing may involve greater fluctuation and potential for losses.

Monthly Market Recap – May 2024

The Economic Data Rundown