May Market Recap
The stock market story reads considerably different in May depending on which benchmark you are looking at. One (the NASDAQ) catapulted significantly higher. One (the Dow) sank considerably lower. And one (the S&P 500) stayed flat. No word as to which index Goldilocks found most comfortable.
The wide disparity in performance last month mirrors a year-to-date trend of Tech and Retail vastly outperforming everything else (a role reversal from 2022). In May, eight of the 11 sectors in the S&P 500 were negative, yet the index still squeaked out a positive return. Year-to-date through May 31, eight of the S&P’s 11 sectors have suffered losses, but thanks to the outsized influence of the largest companies, the S&P 500 has gained nearly 9%.
Technology (+9.3%), Communication Services (+6.2%), and Consumer Discretionary (+3.1%) were the three positive sectors in May. Energy (-10.6%) and Materials (-7.1%) were down the most.
Benchmark Returns: May 2023 | YTD 2023
-3.49% | -0.72%
+0.25% | +8.86%
+5.80% | +23.59%
The S&P 500 remains almost exactly halfway between its all-time high (January 2022) and its October 2022 low. It’s interesting that despite the NASDAQ’s steep year-to-date rally, it remains just below its own midway point between all-time high (November 2021) and October 2022 low.
The expectation that the Federal Reserve has reached the end of its rate-hiking campaign has certainly helped fuel the outperformance of Growth stocks. The Fed raised interest rates by another 0.25% on May 3, but the consensus is that it will hit the PAUSE button from here. We’ll find out for sure following the Fed’s next meeting on June 14.
The Consumer Price Index (CPI) released on May 10 revealed annual inflation of 4.9%. It’s the lowest inflation reading in two years and significant because the Fed Funds Rate (currently 5.0 – 5.25%) is now higher than year-over-year inflation. Historically, that is a point that often coincides with the final stages of tighter monetary policy. The other key inflation gauge, the Personal Consumption Expenditures (PCE) index, showed 4.4% inflation (up from 4.2% a month earlier).
10-year Treasury yields got as high as 3.85% in late May, their highest level in two months. Some of the spike in bond yields was related to concern that the US government might default on its debt obligations if politicians failed to resolve the country’s debt ceiling.
Fortunately (and predictably), that did not occur. The US House of Representatives voted in favor of a bipartisan deal on May 31 to limit government spending and suspend the debt ceiling until January 2025. The US Senate is expected to do the same. This was always the most likely outcome. Financial markets never behaved as though there was a realistic chance of default.
Another market force driving stocks higher is the accelerating influence of Alternative Intelligence. Bets are being made on which companies are best positioned to benefit from the expected A.I. boom and microchip-maker Nvidia grabbed the most attention in May. Nvidia stock exploded nearly 25% higher on May 25 after the company’s revenue forecast blew away consensus outlooks. Its $184 billion single-day increase in market capitalization was the third largest of any stock all-time (behind Apple and Amazon).
With Q1 reporting season now complete, S&P 500 company earnings fell 2.1% from a year earlier, considerably better than the 6.8% decline that was forecast as of March 31. It does, however, still qualify as an “earnings recession” given this was the second consecutive quarter of earnings declines.
Small-cap stocks, as measured by the Russell 2000 index, lost 1.1% last month and are now negative overall in 2023. International equities lagged in May. Non-US Developed stocks lost 4%. Emerging Markets stocks fell 2.4%.
The latest US unemployment rate fell to 3.4%, matching a 54-year low. Gold prices dropped 1.3%. Crude oil prices declined 8.6%, which helps explain Energy’s place as the worst-performing equity sector last month.
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
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.
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 21 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.
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