Market Monitor: May Update

Headlines and Highlights
  • Bounceback month for markets: Global markets rebounded in May from a rough April on improved inflation data and the growing prospect of interest-rate cuts coming soon. The S&P 500 had its best May since 2009, adding 5.1% for an 11.3% year-to-date gain. International developed stocks (+5.1%) matched the U.S., benefiting from economic momentum and a weaker dollar. Taxable bonds (+1.7%) had their best month since December as cooling economic activity and inflation caused yields to decline. Municipal bonds were an outlier, falling due to an unusually large number of new issues coming on the market.
  • Inflation back on right path? The Federal Reserve’s preferred inflation measure had its smallest monthly advance of 2024, a sign of resumed moderation following the uptick in price growth early in the year. The core personal consumption expenditures (PCE) price index, which omits the volatile food and energy categories, rose 0.2% from the prior month in April and held steady at 2.8% on an annualized basis. The evidence that inflation appears to be cooling again – or at least not worsening – increases the likelihood of the Fed initiating interest-rate cuts sometime in the second half of this year.
  • Consumer confidence increases: An index of consumer confidence compiled by the Conference Board rose unexpectedly in May after three straight monthly declines, buoyed by the strong labor market. Consumers expressed less pessimism about employment, business conditions and the stock market while remaining worried about rising prices. More positive sentiment also was evident abroad: Economic confidence rose in the 20-nation eurozone as the region recovers from its mild recession in the second half of 2023.
Selected Market Returns

market monitor

Sources: Morningstar, Altair Advisers

Our Views
  • Inflation data showing price growth moderating slightly was encouraging for the longer-term trend but did not provide enough evidence for the Federal Reserve to cut interest rates at its upcoming June meeting. With the employment market staying strong, Fed officials can afford to wait longer for a more convincing decline in inflation toward their 2% target.
  • The Fed is still likely to begin lowering rates this year, although perhaps not until late autumn. Fed policymakers have said they are open to higher rates if inflation picks back up. But with inflation easing again and the economy slowing, we believe another rate hike is unlikely as it would pose unnecessary risk to a moderating economy.
  • Economic activity is likely to continue slowing due to elevated interest rates, which should hasten inflation’s decline. While most indicators remain positive, the housing market is stalled, factory activity is shrinking and the job market, while still healthy, has cooled. We do not expect U.S. real GDP growth to match last year’s rate of 2.5%.
  • The economy is still solidly in expansion territory even after first-quarter GDP growth was revised downward to 1.3%, the slowest since the second quarter of 2022, as consumer spending slowed. Growth in the current quarter is proceeding slightly better at an estimated 1.8%, according to the Atlanta Fed’s GDPNow forecasting model.
  • Stocks will continue to benefit from several tailwinds for the rest of 2024 even after above-average performance by both U.S. large caps and international developed stocks in the first five months. The AI boom, improving corporate profits, rising productivity, and the market’s history of strong performance in most presidential reelection years all should provide support for further U.S. market gains. International stocks stand to gain from strengthening economies and central bank rate cuts ahead of the Fed’s.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice.