Update on Markets and Economy for May 2024

Robert McGee, CFA® | SVP & Chief Investment Strategist

As we reflect on recent market trends, it is evident that both equity and fixed income markets gave back some performance. US inflation data has been hotter than expected and Gross Domestic Product growth has been weaker than consensus forecasts. These occurrences stoked fears that central banks might not swiftly enact the anticipated monetary policy easing.

A pivotal narrative in April was the market’s reevaluation of the likelihood of Federal Reserve rate cuts. We witnessed a shift from robust confidence in three imminent cuts, commencing in June, to conjecture that the Fed may need to address inflation more vigorously before contemplating rate reductions. Economic indicators painted a complex picture, as March headline and core Consumer Price Indices surpassed projections, revealing pockets of heat in shelter and ancillary services especially in medical and insurance costs. However, core Personal Consumption Expenditures remained within consensus expectations. Despite robust nonfarm payrolls and retail sales outperforming forecasts, the initial first quarter Gross Domestic Product reading fell short, raising concerns about the economy’s ability to achieve a soft landing amidst potentially heightened growth.

In April, US equities weathered a downturn, retracing some gains from the initial quarter. Following a March peak, the S&P 500 experienced a decline of approximately 5.5% by mid-April, stabilizing towards month-end, concluding down 4.1% but up 6.0% year-to-date.  Utilities emerged as the sole positive sector for the month, with a 1.7% increase. However, REITs and Technology bore the brunt of the decline, with drops of 8.5% and 5.4%, respectively. Small-cap stocks, as gauged by the Russell 2000, fell by 7.0%, while international stocks fared relatively better with a 1.8% decline according to the MSCI All-World ex US index.

Fixed income markets felt the reverberations of revised rate expectations, as markets recalibrated projections, pushing out the timeline for potential rate cuts. Two-year Treasury yields surged by 40 basis points to 5.0%, while 10-year Treasury yields climbed by 47 basis points to 4.7%. The Bloomberg US Aggregate returned -2.5% in April, concluding the month with a Yield to Maturity of 5.24%.

In navigating these turbulent waters, it is imperative to maintain vigilance, adaptability, and a keen eye on emerging trends.