Buy In May And Say Hooray: Stocks Jump As Inflation Cools

seekingalpha06-01

Stocks rebounded in May, with the S&P 500 rising nearly 4% and the Nasdaq 100 ETF rallying almost 5%.Small-cap stocks outperformed large caps as the yield on the US 10-year Treasury note dipped toward...

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We saw so many blowouts and blowups among small and mid-sized retailers in this reporting period. Tech finished May with a whimper, losing about 4% over the back half of last week. That came after NVIDIA Corporation's  record-smashing Q1 report, which included an increased dividend, share buyback announcements, and news of a stock split. 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Though the S&P 500 (SP500) gave back some gains over the final three sessions, it rose nearly 4% for the month. Relative strength was seen in Nasdaq stocks - the Invesco QQQ Trust ETF (QQQ) rallied almost 5%. In small-cap land, the iShares Russell 2000 ETF (IWM) climbed more than 4%, better than the return of large caps, which might come as a surprise to readers. Overseas, the Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) performed well, up better than 3% with general steadiness in the US Dollar Index. Action was seen across emerging markets, namely China, which jumped big to begin May, but then endured a quick 10% correction, pressuring the iShares MSCI Emerging Markets ETF (EEM). Still, ex-US developed markets performed well amid strength in the European Bourses and among Japanese equities. As for the bond market, yields wobbled around the 4.5% mark on the US 10-year Treasury note. Fed Speak was boisterous during the month, and inflation data was broadly about what economists were expecting, be it the April CPI or PCE datasets. All told, the iShares Core U.S. Aggregate Bond ETF (AGG) posted a total return of about 1.5%. Commodities as a whole were roughly flat in May, as measured by the Invesco DB Commodity Index Tracking Fund ETF (DBC). Stocks & Bonds Rally in May, Small Caps Outperform Stockcharts.com Sector-wise, Utilities (XLU) was the shining star. The power-producing group became the latest AI darling, stealing the crown from some tech plays. Bringing up the rear, on the other hand, were Energy (XLE) and Consumer Discretionary (XLY). Oil prices (CL1:COM) crept up at times in the last few weeks, but still finished May under $80 per barrel on WTI's prompt month. Gasoline futures settled close to three-month lows, though, so there should be some relief at the pump for summer travelers. Will that help spending activity in the months ahead? Hard to say, but consumer stocks have struggled and were in the spotlight for good and bad reasons during earnings season. We saw so many blowouts and blowups among small and mid-sized retailers in this reporting period. Tech finished May with a whimper, losing about 4% over the back half of last week. That came after NVIDIA Corporation's (NVDA) record-smashing Q1 report, which included an increased dividend, share buyback announcements, and news of a stock split. Utilities Led the Way in May, Discretionary & Energy Negative Koyfin Putting it all together, the S&P 500 now trades close to 21 times forward earnings estimates. That sounds lofty, and it is, but we have also seen forecasters raise their full-year 2024 EPS estimates for domestic large caps - something that is quite rare. So, while the SPX is up handsomely year to date, much of the gain has been via good old-fashioned rising realized and estimated earnings, not just multiple expansions. S&P 500 EPS Rising, Near $280 (est) for 2025 Factset Will there be challenges ahead, though? A slowdown in consumer spending could be in full swing. As we all hear from retailers, restaurants, and travel companies about incoming price cuts, April's Retail Sales report revealed a softer spending picture. Weakness was seen particularly in non-store retailers (aka online retail), but most categories were much lighter compared to strong sequential spending trends in February and March. That's good news in the sense that an easing off the gas pedal for households could mean lower inflation in the months to come… just what Chair Powell and the FOMC want to see before cutting rates. Softer April Retail Sales BofA Global Research The Fed is also closely monitoring developments in the jobs market. April's employment report showed a much slower pace of hiring compared to March's hot 300k+ NFP gain. It is yet another sign that the economy is cooling. We'll get important clues on the state of the labor market next week through several reports, including ISM PMI Employment sub-indexes, the March JOLTS survey, ADP Private Payrolls for May, and of course, the Labor Department's May Nonfarm Payrolls report. US Jobs Growth Ebbed in April BLS As it stands, the market now prices in a whisker more than one quarter-point interest rate cut by the Federal Reserve this year. When that comes about is highly uncertain, but odds are that the September 18 meeting, less than two months from the general election, will be when the ease is announced. Could a July cut happen? Yes, but we would have to see a very cool set of May and June inflation figures. Any uptick in consumer prices could push out the initial ease until 2025. 28 Basis Points of Cuts Priced Into 2024 CME FedWatch Tool The growth picture looks fine. Not too hot, and certainly not cold. According to the Atlanta Fed's GDPNow tool, Q2 real GDP tracks at 2.7%, down from above 4% as was seen during the first half of May. Most signs point to a material macro slowdown compared with the torrid expansion pace over the back half of 2023. Q2 GDP Seen Under 3% Atlanta Fed The Bottom Line  After the hoopla that was \"Dow 40k\" a handful of sessions ago, equities pared gains into the close of May. \"Sell in May and go away\" proved to be terrible advice, however, as stocks big and small posted impressive gains. With earnings largely in the rearview mirror and Fed members in a blackout period, the focus shifts to the macro data in the week ahead and to technical price action.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2440479519"}