Historically, the S&P 500 underwent an average decline of 0.1% in May, making it the second worst-performing month of the year. This has led to the Wall Street adage, “Sell in May and go away.”
Despite this, May saw the S&P 500 posting its best monthly performance since February, with an uptick of roughly 5%. Driving the surge were information technology stocks animated by optimism about Artificial Intelligence (AI) related growth.
The DJ Industrial Average also saw growth, increasing 2.58% in May. The NASDAQ Composite boasted a substantial 6.9% increase for the month.
In bond-related news, U.S. government bonds rallied in May, thanks to favorable inflation data fueling predictions of a potential Federal Reserve interest rate cut this year.
Yields across all maturities declined, which boosted market confidence and increased bets on a possible quarter-point Fed rate cut. The Treasury market had a positive month, with a gain of 1.1% overall.
All sectors, except for Energy, posted gains, with Information Technology leading the charge with a 2.94% increase. Crude oil prices declined, while copper prices rose to historic highs.
Returns % as of 5/30/24
Equity markets rebounded from April’s downturn.
Bonds rallied this month after benign inflation data kept alive predictions that the Fed will cut interest rates at least once this year.
Equity risk factors were mixed for the month. Momentum and Quality outperformed in the United States while Value and Size outperformed in International Developed and Emerging markets.4
The Economy, Inflation & the Fed
The personal consumption expenditures price index met Wall Street’s predictions, recording a 2.7% increase in April compared to last year. Despite robust economic indicators, such as low unemployment, increasing wages, modest GDP growth, falling inflation, and a thriving stock market, many individuals feel their financial situations are deteriorating. Prices may be growing at a slower pace, but they remain higher than before, causing distress even with a 2% inflation rate.
Prices have surged significantly since 2020, with an increase of around 20% to 30%. While the latest Consumer Price Index report indicates a substantial reduction in inflation to 3.4%, costs continue to escalate. McDonald’s, for example, has reported a 40% price increase over the past five years due to higher labor, paper, and food costs.
Consumer spending has remained robust despite high interest rates and inflation. However, recent signs suggest that low-income consumers might be facing hardship. Retail sales growth came to a halt in April and recent earnings reports from Target and Walmart reflect struggles among lower-income consumers. While consumers were able to rely on pandemic-era savings during tough times, this buffer is dwindling fast, making them more susceptible to financial insecurity.5
Research indicates that negative news headlines generate more reader engagement than positive ones, which is why new outlets tend to focus on negative news. This dynamic also influences investor psychology, often leading to anxiety and reluctance to stay invested when there is gloomy economic news.
As we head into what may be a contentious political season, investors need to look beyond the immediate news scope and focus on long-term market trends despite the constant bombardment of headlines. As history shows, maintaining patience and a long-term investment approach yields better results.
1 Morningstar Direct as of May 31, 2024.
2 S&P Dow Jones Indices as of May 31, 2024.
3 Morningstar Direct as of May 31, 2024.
4 Morningstar Direct as of May 31, 2024.
5 Dezember, R., “Dow Rises, Stocks Log Monthly Gains,” Wall Street Journal, May 31, 2024.
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