Clearview Portfolio Consulting May Market Recap
Key Points:
- The Dow Jones Industrial Average crossed 40,000 for the first time in history as US stocks hit all-time highs.
- After starting the year with higher than expected inflation, CPI for April was in line with expectations.
- Bonds saw their best month of 2024 as yields dropped in May.
Stocks advanced in May with the Dow Jones Industrial Average hitting an all-time high and rose above the 40,000 mark for the first time in history. The S&P500 gained 4.96% during the month while the NASDAQ climbed almost 7%. After several months of hotter than expected inflation readings, investors welcomed the 3.4% CPI figure for April. Higher inflation figures to start the year had investors worried that the Fed may need to raise interest rates to slow the economy and bring down prices. Interest rate cuts may be back on the table this year with Goldman Sachs still calling for two cuts to the benchmark rate while Bank of America expects the first cut in December.
Technology stocks led the market higher, gaining over 10% for the month. Utilities (+8.97%) and communications services (+6.58%) were also strong performers while energy (-0.39%) was the only sector in negative territory. Oil prices hit an intra-year high $86/barrel in April and fell to $76/barrel during May. Small caps outperformed large caps but are still trailing over the past year despite lower relative valuation measures. Growth outperformed value for the month but investors are finding opportunities in companies outside of artificial intelligence development. According to JPMorgan, companies like Walmart and Bank of America (among many) will see productivity and efficiency gains in the future as they implement artificial intelligence into their operations.
Bonds moved higher in May as interest rates came down on expected weaker consumption this year from higher consumer prices. The Bloomberg US Aggregate Bond Index posted its best month of the year, up 1.7%. Mortgage-backed securities and long dated Treasury bonds were the best performers during May. The 10-year Treasury note yield fell with high inflation and a cooling labor market weighing on business expectations for future consumer spending. Whether or not the Fed decides to move on rates this year is further complicated by the upcoming presidential election. However, it is important to note that intermediate and long-term yields are determined by supply and demand factors prevailing in the market and can move up and down without any action by the Federal Reserve.
Sources: Morningstar Direct, JPMorgan, Goldman Sachs, Merrill Lynch, Wall Street Journal