|
April’s end-of-month momentum carried into and through the month of May. June, thus far, has seen a continuation of the positive momentum. After three consecutive down months, portfolios in May were rewarded with patience in holding on to the long investment theses in individual stocks. Q1 earnings proved to be stronger than anticipated. The S&P 500 increased +6% in May, its finest performance since November 2023. S&P 500: May +6.15% YTD +0.51% Communication Services +3.59% 6 Month Bill 4.29% Price pressures are easing as the Federal Reserve’s preferred inflation measure (PCE) printed at a 2.1% rate in April. Core inflation was essentially flat for the month. Consumer spending decelerated in April with just a 0.2% uptick. The May Jobs report came in better than expected at 139,000 nonfarm payrolls added. However, the additions were primarily in Healthcare, Leisure and Hospitality. This is another indicator that job growth is continuing to slow. Both March and April reports were revised lower. Though toned down, the tariff chatter is still negatively impacting private job growth. Policy uncertainty creates restraint in hiring and forward-looking actions. President Trump and Xi Jinping spoke last week, and emissaries are speaking today in London. Wall Street anticipates no rate cut at the upcoming FOMC meeting. Fed Chair Powell met with President Trump to discuss. Powell will continue to be data dependent. The chance for a rate cut is increasing with inflation cooling and employment data remaining steady. 98% of the S&P 500 have reported Q1 earnings with 78% beating expectations. 64% beat on revenues. The growth rate is now 13.3% with revenue growth at 4.9%. The market believes Q1 pulled forward economic activity from Q2. As such, earnings growth is now projected at 5% vs 9% with revenue reduced slightly to 4% from 4.6%. The S&P 500 is now trading at just over 21.3x forward earnings. This is above the five-year average of 19.9x. The market may move sideways in the short-term, though the relative strength of the market is strong. Forward guidance has been well received from companies, and few pulled their Q2 guidance. AI continues to drive performance of stocks in the Technology, Industrial and Energy sectors. Healthcare is beginning to deploy AI as well. Overall market breadth is solid. There is $7 trillion in Money Market Funds waiting to be deployed. This augers well for stocks once the tariff turmoil subsides and the picture becomes clearer. We believe the market will continue to move higher into year-end. There is no doubt that macro-economic issues can pause the upward momentum, but we’ve witnessed the market climb higher despite these issues. Rates will be coming down, just not as rapidly as believed to start the year. This is another tailwind for stocks. Patience and good investment selections have kept portfolios intact and able to retrace losses from “Liberation Day” and track higher. We remain steadfastly optimistic with our market view and portfolio positioning. |
