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.¹

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.²,³

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. Stocks breathed a sigh of relief when the wholesale inflation report, released the following day, was less than the consensus estimate.⁴,⁵,⁶

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.⁷,⁸

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.⁹,¹⁰,¹¹

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.¹²

What Investors May Be Talking About in May

The Fed’s two-day policy meeting ended on May 1, but if March is any indication, the “headline-grabbing” comments from Fed officials won’t start until a few days after the Fed’s official meeting concludes.

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.

Starting on May 2, Federal Reserve governors and presidents are allowed to schedule speaking events. During the speeches, they are 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 three 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 one interest rate cut, followed a few days later by Minneapolis President Neel Kashkari saying that cuts may be off the table entirely.¹³,¹⁴

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.¹⁵

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.¹⁶

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.¹⁷

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.¹⁸

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.¹⁹

Retail Sales

Consumer spending rose 0.7 percent in March, more than double the 0.3 percent increase expected.²⁰

Industrial Production

Industrial output rose 0.4 percent in March in line with estimates.²¹

Housing

Housing starts rose by 8.8 percent in March compared with February and 8.3 percent from March 2023.²²

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 $393,500.²³

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.²⁴

Durable Goods Orders

Orders of manufactured goods designed to last three years or longer rose 2.6 percent in March, compared with a 0.7 percent increase in February.²⁵

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.²⁶

By the Numbers: May is for the Mothers

• The near-record amount expected to be spent on Mother's Day – $33.5 billion²⁷
• The percentage of the U.S. expected to celebrate the holiday – 84%²⁸
• The record amount spent on flowers alone for Mother's Day in 2023 – $3.2 billion²⁹
• The portion of all holiday purchases at flower shops attributed to Mother's Day – 26%³⁰
• The number of countries where Mother's Day is celebrated - 100³¹
• The most popular gift on Mother's Day – Greeting Cards³²
• The number of Mother's Day cards Americans purchase annually – 113 million³³
• The percentage of Americans who value the sentiment of finding a unique gift for Mother's Day – 47%³⁴
• The estimated number of mothers worldwide, with around 77 million residing in the U.S. – $2.2 billion³⁵