May Market Recap
Stocks moved back into the fast lane in May.
The Dow crossed 40,000 for the first time, the S&P 500 gained nearly 5%, and technology stocks resumed their pole position as the NASDAQ jumped almost 7% to reclaim the “best-performing benchmark” label year-to-date.
That 6% pullback in the first half of April sure faded into the rearview mirror pretty fast.
Nine of the 11 sectors in the S&P 500 moved higher in May. Technology (+10%) and Utilities (+8.5%) accelerated most. Energy (-1%) and Financials (-0.6%) were running on fumes.
Benchmark Returns: May 2024 | YTD 2024
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Dow Jones
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S&P 500
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NASDAQ
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+2.30% | +2.64%
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+4.80% | +10.64%
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+6.88% | +11.48%
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US equities were negative in the final week of May but we won’t let one sour week spoil a good narrative. Stocks had gone up for five consecutive weeks to that point, a winning streak that lifted the major benchmarks to new highs.
In addition to the Dow’s 40,000-point milestone, the S&P 500 reached a new all-time high on May 23 and finished the month just 1% below that mark. The NASDAQ’s latest record, this one above 17,000, came on May 28.
Better-than-expected corporate earnings helped fuel this latest rally. The cumulative growth for S&P 500 companies in Q1 was 5.9%. It’s the best year-over-year earnings growth in two years (Q1 2022) and far stronger than the 0.5% consensus that had been forecast leading into earnings season.
We have written previously that strong earnings and interest-rate cuts are needed to justify current valuations, and we just checked one of those two boxes. The market responded with its best May since 2009.
A strong May also bodes well for future returns. Since 1950, when the S&P 500 gains more than 4% in May, it coincides with “rest of year performance” more than double the average (+10.5% compared to +4.9%), according to data compiled by Ryan Detrick at Carson Investment Research.
The latest inflation data was favorable. The Consumer Price Index (CPI) rose 3.4% year-over-year, down from 3.5% a month earlier. The most recent Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, rose 2.7% (down from a 2.8% increase a month ago). Excluding more volatile food and energy prices, the PCE has been stuck at 2.8% for three months in a row.
The Federal Reserve’s Open Market Committee, which sets interest rate policy, will meet again on June 11-12 although very few market observers expect any rate cuts prior to mid-September.
First quarter GDP growth was revised lower by the Bureau of Economic Analysis. The updated figures revealed 1.3% annualized growth in Q1, down from the 1.6% estimate reported in April. The difference was attributed mostly to weaker consumer spending.
The latest readings on consumer confidence were mixed. The University of Michigan’s sentiment survey fell significantly compared to a month earlier and showed that most Americans expect inflation to get worse (an opinion we do not share). Data from the Conference Board, however, indicates improving confidence in stocks and the US labor market.
Bond yields fell slightly but were generally stable in May. 10-year US Treasuries finished the month yielding 4.51% (compared to 4.69% a month earlier). The yield curve is still inverted, meaning bonds with shorter maturities yield more than longer-dated bonds. Money market funds remain an attractive option for conservative investors.
Small-cap stocks rebounded nicely from an ugly April. The Russell 2000 index increased 4.9% in May, though its 2.1% year-to-date return still lags the major US benchmarks.
Internationally, non-US Developed equities gained 5.1% last month. Emerging Markets were up 2%.
West Texas Intermediate Crude oil fell 4% and trades below $76 per barrel.
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Marks Group Wealth Management performs in-house analysis on companies. Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings. The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice. Additional information is available upon request.
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Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets. No strategy assures success or protects against loss. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Past performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 Index 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.
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 Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price to-book ratios and higher forecasted growth values.
Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
VIX-The Chicago Board Options Exchange’s CBOE Volatility Index, a popular measure of the stock market’s expectation of volatility based on S&P 500 index options. It is calculated and disseminated on a real-time basis by the CBOE, and is often referred to as the fear index or fear gauge.
