No “sell in May” this year.

May 2024 Monthly Market Commentary

• The S&P 500 Index gained 5.1% in May, slightly outperforming the Russell 2000’s (Small/Mid-Cap) 5.0% return. Ten of the eleven S&P 500 sectors traded higher, led by Utilities.
• Corporate investment-grade bonds produced a 2.2% total return as Treasury yields fell, outperforming the corporate high-yield bond index’s 1.6% total return.
• International stock performance was varied. The MSCI EAFE (developed markets) returned 5.1%, while the MSCI Emerging Market Index lagged peers with a 2.0% return.

Stocks and Bonds Rebound in May Driven by Big Tech

The S&P 500 set a new all-time high in May after trading lower in April. The rebound from April was driven by the tech heavy Nasdaq which gained 6.2% and set a new all-time high on the back of strong performance from “Magnificent Sevent” stocks Nvidia, Apple, Microsoft, and Facebook-parent Meta.

Notably, smaller companies also participated in the rally, with the Russell 2000 Index now showing positive YTD returns. In the credit market, Treasury yields reversed a portion of their April rise. The U.S. Bond Aggregate Index, which tracks a wide range of investment grade bonds, gained 1.7% as yields fell. What drove the market rebound in May? A perfect combination of labor market and inflation data. More on this below.

Shifting Economic Data Has Increased Market Volatility in 2Q 2024

The economy and Federal Reserve policy (i.e. inflation) remain the focus of markets. Investors are analyzing every new data point with one clear objective – correctly guess when the Fed will cut rates. Labor market and inflation data are considered most relevant because the Fed aims for maximum employment and stable prices. Softer labor market data and lower inflation are viewed as pulling forward rate cuts, while stronger labor market data and higher inflation delay the expected timing of rate cuts.

Back in April, markets reacted negatively to economic data which showed lower unemployment and unchanged inflation. Specifically, this signaled to investors the US economy continued to exhibit a strong labor market and sticky inflation, leading investors to lower interest rate cut expectations.

In May, the latest labor market and inflation data signaled the opposite. The U.S. added 175,000 jobs (the slowest pace of job growth since December 2022) and unemployment rose to 3.9%. Inflation data revealed that Core CPI fell to 3.6% year-over-year, the lowest reading since April 2021. These data points marked a shift from the previous month, signaling a softer labor market and easing inflation. As a result markets moved higher and investors once again increased their rate cut expectations for 2024.

As April and May showed, monthly economic data can be noisy and lead to market volatility. Headed into summer we expect market volatility to persist, especially around economic data releases. While earnings remain important for market fundamentals investor expectations over the pace of rate cuts remains the key driver. As such, until there is more certainty around Federal Reserve policy, inflation, and economic growth we suggest investors ignore the noise and remain disciplined with their investments and long-term plans.

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ENDNOTES

Disclosures
This commentary reflects the personal opinions, viewpoints and analyses of the author providing such comments, and should not be regarded as a description of advisory services provided by Defiant Capital Group or performance returns of any Defiant Capital Group client. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Defiant Capital Group manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary.

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

A word on risk
All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. This report should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.