The month of May was mixed for the market indices. The S&P500 and Russell 2000 ended essentially flat for the month. The DOW was down more than -3%. The NASDAQ was the star, driven by continued AI fever, and finished at almost +6% for the month. The last trading day saw some profit taking in the 7 names carrying the 2023 performance…Advanced Micro Devices, Alphabet, Amazon, Apple, Nvidia, Meta and Microsoft have carried the load.
Corporate earnings reporting is almost over with over 95% of the S&P500 companies having reported. The numbers have been solid, with 76% of companies beating on revenue and 78% on earnings per share.
Crude oil delivered not only its worst month, down -11% in May, but worst week since November 2021, suggesting disinflation could be working into the picture. The correction in Energy is almost complete. The DOW leaders in May were Microsoft, Apple, and Salesforce. The laggards were Nike, Walt Disney, and Walgreens Boots.
S&P500: May +0.25% YTD +8.86%
DOW: May -3.49% YTD -0.72%
NASDAQ: May +5.80% YTD +23.59%
Russell 2000: May -0.96% YTD -0.66%
Sector Performance:
Communications Services +32.20%
Consumer Discretionary +18.20%
Consumer Staples -2.81%
Energy -12.90%
Financials -7.60%
Healthcare -6.20%
Industrials -1.70%
Materials -3.80%
Real Estate -2.80%
Technology +33.30%
Utilities -8.50%
U.S. Treasury Yields:
6 Month Bill 5.37%
2 Year Note 4.33%
5 Year Note 3.69%
10 Year Note 3.60%
30 Year Note 3.83%
Global Markets and The Federal Reserve
China’s post-Covid resurgence has cooled. China’s May PMI data came in weaker than expected, questioning not only a possible recession, but greater problems for the global economy. European markets continue to be weak, and Germany is already in a technical recession. The Japanese economy is finally gaining momentum after 30 years.
The JOLTS number (Job Openings and Labor Turnover) fell from 2.5% in March to 2.4% in April as 3.8 million workers left their jobs in April. The number of job openings in April rose above economists’ expectations, clouding the Fed’s next move. A cooling labor market may help the likelihood that the Fed does not raise rates in June.
Payrolls rose in May, continuing the resilient labor market. The Fed may not be able to break the labor market, but this will allow for additional data to come in and change the view. Most likely the Fed does a “skip” and not a pause in June.
Debt ceiling discussions dragged on throughout the month, but a resolution has been reached. Mortgage rates moved higher at the end of the month to almost 7%. Housing is still tight with supply, and though demand is high, purchase volumes continue to be hampered.
Looking Forward
We remain cautiously optimistic on the markets and expect positive performance for 2023. Comparisons should get easier for Q3 and Q4 earnings and we anticipate the market performance to broaden out from just the Technology sector. Cash in core money markets continues to deliver almost 5% yields helping investors to remain patient on the buy-side. We will continue to keep cash on hand.