May was one of the strongest months for equities in recent memory. Stocks surged on the back of resilient corporate earnings, easing inflation, and renewed optimism in U.S.-China trade relations. A 90-day reduction in tariffs between the two countries early in the month lifted investor sentiment. Technology shares soared on momentum from Middle East investment announcements, helping drive the NASDAQ and S&P 500 to their best monthly gains since 2023. Nine of the 11 S&P 500 sectors finished the month higher, led by information technology, communication services, and consumer discretionary. Health care and energy were the only sectors to post declines.
Despite improving inflation data, price growth has yet to reach the Federal Reserve’s 2.0% target. Both the Personal Consumption Expenditures (PCE) price index and the Consumer Price Index (CPI) showed declines in annual inflation for the 12 months ended in April, though core prices remained stable. With global reciprocal tariffs still looming, the Fed is expected to remain cautious as it evaluates economic conditions.
Gross domestic product contracted 0.2% in the first quarter, down from 2.4% in Q4 2024, as trade deficits and slowing consumer spending weighed on output. Meanwhile, April job growth exceeded expectations, and earnings rose 3.8% year-over-year. Unemployment remained steady at 4.2%. During earnings season, 78% of S&P 500 companies beat EPS estimates, with the healthcare sector reporting the strongest growth. However, concerns about recession and tariff impacts persisted across earnings calls.
Bond yields climbed through May, with 10-year Treasuries rising 23 basis points. The dollar continued its slide, falling for a fifth straight month, while gold extended its winning streak to five months. Oil prices rose despite volatility tied to OPEC+ and trade policy. At the pump, gas prices declined slightly from April and are well below levels from a year ago.
Last Week’s Economic News
-
-
Job growth in April added 177,000 new positions, exceeding expectations. The unemployment rate held steady at 4.2%.
- The Federal Reserve held the federal funds target rate at 4.25%-4.50% at its May meeting. The Committee noted a solid pace of economic activity but highlighted heightened risks to both employment and inflation targets.
- First-quarter GDP decreased, down from a 2.4% gain in Q4 2024. Consumer spending slowed, while imports surged 42.6%. Business investment jumped 10.3%, and exports rose 2.4%.
- The federal budget recorded a surplus in April. Receipts totaled $850.2 billion, while outlays reached $591.8 billion.
- Consumer spending rose in April. The PCE price index and core prices both increased slightly month-over-month. Year-over-year, the PCE index rose 2.1%, while core inflation stood at 2.5%.
- The Consumer Price Index rose in April. Over the past 12 months, CPI increased 2.3%, with core CPI up 2.8%.
- Producer prices fell in April, with service prices dropping 0.7%. Over the past year, the Producer Price Index rose 2.4%. Core producer prices (excluding food and energy) rose 3.1% over 12 months.
- Existing-home sales declined in April and were down 2.0% from a year ago. Inventory improved to a 4.4-month supply.
- New single-family home sales rose in April and were 3.3% above last year’s level. Inventory fell to 8.1 months’ supply.
- Industrial production was unchanged in April.
- Durable goods orders fell in April, primarily due to a sharp drop in orders for transportation equipment. Excluding transportation, orders increased.
- Import prices rose in April and are up just 0.1% year-over-year. Export prices also rose, marking a 2.0% increase over the past 12 months.
- The international trade in goods deficit narrowed in April, down also from March. Exports rose 3.4%, while imports fell 19.8%.
- Consumer confidence improved in May.
-
Eye on the Week Ahead
As we enter June, investor attention will shift toward ongoing policy debates in Washington, particularly tax and immigration legislation, as well as the continued effects of global tariffs. Market watchers will also be monitoring inflation, consumer sentiment, and any signals from the Fed regarding a potential policy shift in the second half of the year.
Have a nice week!
Sincerely,
Robert G. Carpenter