US stocks were slightly positive for the month as debt ceiling concerns weighed on investors. The House passed an agreement to increase the debt ceiling days before the X-date avoiding a US default. With 99% of S&P companies having reported Q1 earnings, 78% of companies reported earnings per share that beat estimates and 75% reported positive revenue surprises. Economic news was mixed as the labor market continued to be strong while inflation remained sticky and home sales and values declined. U.S. employers added 253,000 jobs in April, well above the 180,000 estimate. The unemployment rate fell to 3.4%, below the expected 3.6%. The producer-price index increased by 2.3% annually in April, the smallest annual increase since January 2021. CPI increased 4.9% annually in April, slightly less than the 5% estimate and the lowest annual pace since April 2021. Core CPI, which excludes food and energy, increased by 5.5% in April, as expected. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 4.4% annually in April, up from a 4.2% increase in March. US retail sales increased by 0.4% in April, below the 0.8% estimate. U.S. existing-home sales declined by 3.4% in April and are down 23.2% from April 2022. Home prices fell in nearly a third of metro areas.
Foreign stocks declined in May as China’s growth slowed and Germany slipped into recession. The Eurozone headline inflation rate increased to 7% in April up from 6.9% in March. Eurozone core inflation, which excludes food and energy, fell to 5.6% in April slightly below the 5.7% projected. The European Central Bank slowed the pace of its interest rate increases, increasing its key rate by 0.25%. It was the smallest increase since the bank started raising rates last July. The U.K.’s annual inflation rate rose 8.7% in April, a significant decline from the 10.1% increase in March. The Bank of England raised interest rates in May by 0.25% to 4.5%. Germany slipped into recession after two consecutive quarter of declining growth, as households reduced spending in response to sharply higher prices for food and energy. Multiple Chinese economic indicators, including retail sales, factory production and fixed-asset investment, fell short of economists’ expectations in April indicating China’s post-Covid growth spurt is slowing. Oil prices fell significantly in May, ending the month at $68.09, down from $76.78 per barrel at the end of April. Emerging markets outpaced developed markets over the month, but trailed for the year to date and the last twelve months.
Interest rates increased in May as debt ceiling concerns pushed yields higher. The yield on the 10-year Treasury increased in May ending at 3.64%, up from 3.45% at the start of the month. The Federal Reserve raised the federal funds rate by 0.25% at its May meeting to a range of 5%-5.25%. Fed officials have signaled they may pause their rate increases at their June meeting, but indicated a pause doesn’t mean they are done raising rates. The rate for a 30-year fixed-rate mortgage increased to 6.8% at the end of May, up from 6.4% at the end of April. US Agency bonds were the top performer for May, corporate bonds outpaced for the year to date and Municipal bonds led over the last twelve months. Shorter-term bonds outpaced longer-term bonds for May and the last twelve months, while longer-term bonds outpaced shorter-term bonds for the year to date.
|Index Performance||May||Year to Date||Trailing 12 Months|
|US Stocks (Russell 3000)||0.39%||8.74%||2.03%|
|Foreign Stocks (FTSE AW ex US)||-3.36%||4.85%||-0.92%|
|US Bond Mkt. (BBgBarc Int. Gov/Cred)||-0.74%||2.19%||-0.53%|
|Municipal Bonds (BBgBarc 1-10 Yr Muni)||-0.82%||0.63%||0.81%|
|Cash (ICE BofA ML 3-Mo T-Bill)||0.39%||1.79%||3.14%|