May Market Commentary

Market Commentary

US stocks climbed in May, for a fourth straight month of gains, on optimism over the economic recovery and strong corporate earnings. With nearly all S&P 500 companies reporting earnings, over 86% of companies have beaten analysts’ estimates the highest rate of outperformance since it was first tracked in 2008. The vaccination rate continues to grow with roughly 60% of the eligible US population vaccinated. Economic news in May was mixed showing that it won’t be a smooth climb out from the pandemic. US Job growth dropped sharply in April with 266,000 jobs added. Well below the one million increase in jobs expected. In addition, March’s hiring level was revised down. The unemployment rate rose to 6.1% in April from 6.0% in March. However, initial weekly unemployment claims hit new post-pandemic lows in May giving hope to better results with the May report. US consumer prices climbed a more than expected 4.2% over the past year for the largest jump in inflation since 2008. However, if the effects of price declines that occurred last April are removed, prices increased 0.8% in April. Home price growth reached a 15 year high in March and home prices were up 10% from a year earlier in 89% of metro areas. Consumer spending rose 0.5% in April and manufacturing activity continued to increase.

Foreign stocks surged over the month on optimism over the economic recovery. After struggling to get mass vaccinations underway earlier in the year, Europe has picked up the pace and still hopes to have 70% of its population vaccinated by July. Eurozone manufacturing activity climbed in April and the country bloc said it would allow vaccinated tourists to begin visiting the region. Japan’s economy shrank 1.3% in the first quarter due to a surge in the coronavirus that reduced consumption. China has also seen its rate of vaccinations surge in May, leading the world in daily administered doses. China’s consumer spending fell short of expectations in April and China’s producer price index rose 6.8% in April the fastest pace since 2017 and raising fears of a global acceleration in inflation. Emerging markets trailed developed markets over the month and year to date, but outpaced developed markets over the trailing twelve months.

Bonds continued to rebound in May as investors felt more comfortable that the Fed would not speed up its timeline for reducing support for the economy. Despite the recent increase in inflation, several Fed Governors reiterated their stance that the Fed would be patient in reducing its bond buying program or raising the Fed Funds rate. However, the Fed’s April meeting minutes showed the central bank did want to discuss at a future meeting a plan on how it would begin to reduce its bond buying program given the strong economic numbers and recent high inflation readings. The 10-year Treasury yield declined over the month to end at 1.59% down from 1.65% to start the month marking two months of declining yields. Credit bonds led the way over the month and year to date. Longer term bonds topped shorter term bonds in May, but shorter term bonds have outpaced so far in 2021.