Market Insights

Monthly Market Insights: May 2024

U.S. Markets

Despite a late-month rally, stocks fell in April as investors struggled with a hotter-than-expected inflation report and mixed news about the economy. The Dow Jones Industrial Average dropped 5.00 percent, while the Standard & Poor’s 500 Index declined 4.16 percent. The tech-heavy NASDAQ Composite fell 4.41 percent.

Mixed Economic Data

Economic data out early in the month unnerved investors, and conflicting comments from Fed officials regarding future rate moves exacerbated the selling pressure. Better-than-expected jobs data for the week buoyed markets, but sellers had the upper hand as trading got underway.

Stubborn Inflation

Markets continued lower the following week when fresh Consumer Price Index data showed that March inflation was hotter than expected. Bond yields rose, and stocks retreated in response. Stock owners breathed a sigh of relief when the wholesale inflation report, released the following day, was less than the consensus estimate.

Mixed Signals From the Fed

Remarks from Fed Chair Jerome Powell also unsettled traders, as his tone appeared to shift from confident to not-so-confident about interest rate cuts. A stronger-than-expected retail sales report was one of the few bright spots among the economic reports. It suggested that consumers were spending despite rising inflation.

Middle East Tensions

Tensions in the Middle East influenced trading throughout the month. Despite the headwinds, stocks pushed higher in the final full week of trading as upbeat Q1 reports from two mega-cap tech stocks emboldened investors. But the short-term rally gave way to selling as the month came to a close.

Sector Scorecard

Utilities (+1.66 percent) was the only sector that ended the month above water. Real Estate (8.45 percent), Health Care (-5.01 percent), Technology (-5.76 percent) and Communications Services (-4.64 percent) led the declines. Financials (-4.18 percent), Materials (-4.59 percent), Consumer Discretionary (-4.50 percent) and Industrials (-3.56 percent) were also under pressure. Consumer Staples fell 1.13 percent, and Energy lost 0.94 percent.

U.S. Market Recap

The Markets

The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance doesn't guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.

What Investors May Be Talking About

The Fed revealed at its April 30-May 1 policy meeting that inflation was more persistent than had been expected and rates remained unchanged.

Federal Reserve policy limits the extent to which Federal Open Market Committee (FOMC) participants and staff can speak publicly or grant interviews during Federal Reserve blackout periods, which begin the second Saturday preceding a FOMC meeting and end the Thursday following a meeting, unless otherwise noted.

As of May 2, Federal Reserve governors and presidents are now allowed to schedule speaking events. During these speeches, they’re allowed to give their personal perspectives on the economy, inflation and interest rates. Last month, several speeches showed a divided Fed regarding what’s next with interest rates.

When the Fed’s official meeting ended on March 20, the formal Fed statement said officials had penciled in 3 quarter-point cuts in short-term rates by the end of 2024. But a short time later, Fed officials started to tell a different story. Atlanta Fed President Raphael Bostic suggested 1 interest rate cut, followed a few days later by Minneapolis President Neel Kashkari saying that cuts may be off the table entirely.

So, while the markets digest the Fed’s official statement on May 1, they also anticipate what Fed officials will say in the coming weeks.

World Markets

The MSCI EAFE Index fell 2.93 percent in April. In continental Europe, there were more markets in the red than in the green. Germany (-3.11 percent), Italy (-2.89 percent), France (-2.69 percent) and Spain (-1.99 percent) trended lower for the month. Meanwhile, the U.K. notched a gain, picking up 2.42 percent.

The Pacific Rim markets were also mixed. Hong Kong rose 7.39 percent, while Japan dropped 4.86 percent, and Korea lost 1.99 percent. Australia also was under pressure, slipping 2.95 percent.

World Market Recap

The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance doesn't guarantee future results. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

Indicators

• Gross Domestic Product (GDP). The U.S. economy grew at 1.6 percent in Q1—below economists’ expectations of 2.4 percent. Taking a deeper look, a slowdown in spending on goods, along with shifts in inventories and international trade on the business side, were primary reasons for the disappointing number.
• Employment. Employers added 303,000 jobs in March, topping the 200,000 expected by economists. The unemployment rate edged down to 3.8 percent, in line with expectations, while average hourly earnings increased 0.3 percent and 4.1 percent, also as expected.
• Retail Sales. Consumer spending rose 0.7 percent in March, more than double the 0.3 percent increase expected.
• Industrial Production. Industrial output rose 0.4 percent in March in line with estimates.
• Housing. Housing starts rose by 8.8 percent in March compared with February and 8.3 percent from March 2023.

Existing home sales dropped 4.3 percent. Some speculated the new rules around agent commissions seem to have many prospective homebuyers sitting on the sidelines. March sales were down 3.7 percent on a year-over-year basis. The median sales price was up 4.8 percent from a year earlier, to $393,500.

• Consumer Price Index (CPI). Consumer prices rose 0.4 percent in March over the previous month and 3.5 percent compared with a year prior. Both monthly and 12-month increases were hotter than expected. Core prices, which exclude food and energy, rose 0.4 percent on a monthly basis and 3.8 percent year-over-year.
• Durable Goods Orders. Orders of manufactured goods designed to last 3 years or longer rose 2.6 percent in March, compared with a 0.7 percent increase in February.

The Fed

Minutes from the March FOMC meeting, released on April 10, showed officials’ concern that inflation wasn’t slowing down quickly enough toward the Fed’s 2 percent target.

They reiterated that rate cuts were still on the table for this year. The Fed funds rate remains at the 5.25–5.50 percent target range as of the end of April. Investor attention will shift to indicators following the Fed’s decision at its April 30–May 1 meeting.

By the Numbers: May Is for the Mothers