Hello all - we hope you had a nice May.
Markets continued their march higher and closed the month at record highs. The Dow was up 2.8%, the S&P 500 gained 5.3%, and the Nasdaq, which has a higher concentration of tech stocks, had another solid month up 8.4%.
Markets continued their march higher and closed the month at record highs. The Dow was up 2.8%, the S&P 500 gained 5.3%, and the Nasdaq, which has a higher concentration of tech stocks, had another solid month up 8.4%.
Here’s a look at how the markets moved this month:
The market is back above its average return level.
Here’s a look at how the various market sectors performed this month.
Note how well tech has performed versus all other sectors. Nearly all the new money in the market in the last two months has gone into tech.
Volatility keeps moving lower.
Oil prices saw the biggest monthly decline since the Covid outbreak.
Oil prices rose sharply during the Iran war and Straight of Hormuz closure. Prices fell, though, every time a new “deal” was announced. Yet the “deals” never materialized and the prices bounced back higher. We closed the month with the announcement of another “deal,” so we’ll see if it sticks this time.
Oil prices rose sharply during the Iran war and Straight of Hormuz closure. Prices fell, though, every time a new “deal” was announced. Yet the “deals” never materialized and the prices bounced back higher. We closed the month with the announcement of another “deal,” so we’ll see if it sticks this time.
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IRAN
The Iran war had the most impact on the markets this month.
Actually, it was the Straight of Hormuz that had the most impact. Its closure is keeping prices high for important commodities like oil. This raises inflation and hurts the market. That’s why headlines about the opening of the Straight would send oil lower and markets higher.
This month saw several “deal” announcements. We put “deal” in quotes because officials would say a deal was near, but nothing every materialized. And the terms of the deal we very different depending on which side you were on. Missiles would be fired during ceasefires, complete annihilation would be announced, the “deal” would fall apart, and then we’d get another announcement that a new deal was near.
This makes for a very difficult investing environment. We expected the constant headfakes and continued fighting to dampen the mood in the markets, but stocks keep rallying on the expectation that the Straight will be open with a new deal.
The deal terms we’ve seen discussed seem very unpalatable and we’re not sure why anyone would agree to them. But desperation causes people to do foolish things. And stocks may rise as a result.
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CORPORATE EARNINGS
Corporate earnings were the other main factor behind the market rise. Earnings have been very, very good and the results have been the best in several years.
A lot of the excitement has been around AI. Its not just what AI means for tech companies, but it allows companies of any size or sector to be much more efficient and productive. It may result in less employment, but it means more profitability and that means higher stock prices.
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FED
The Fed was in the news this month - not for any policy announcements, but for the announcement of the new Fed chief, Kevin Warsh. In our opinion, he is a solid fit for the Fed and we think he’ll do a good job.
However, new Fed chiefs nearly always see a lower stock market in the first few months of their term. The reasons for the declines vary, but it’s an interesting statistic worth paying attention to.
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INFLATION
As mentioned above, the war in Iran has caused inflation to remain high and prices are now up 30% since 2020.
The month-to-month number shows a massive jump in prices.
Most of the jump in prices was due to gas.
Prices have reached a point where Walmart is warning about its impact on shoppers who are getting squeezed.
When excluding food and energy (what economists call the “core” inflation), prices are up, too.
Here’s a look at the inflation level for businesses, which is starting to get bad.
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OTHER ECONOMIC DATA
Other economic data releases were mixed this month, though not as bad as they could have been.
Employment hasn’t been as bad as many had feared.
The manufacturing sector continues to look solid, but the service side of our economy weakened slightly.
Retail sales showed a decent increase.
Durable goods had a solid month, but much of the jump was due to new aircraft orders.
Consumer confidence continues its trend lower.
There’s a different measurement of consumer sentiment conducted by the Univ. of Michigan that we don’t often discuss, but felt it necessary this month. Their measure of consumer sentiment hit its lowest reading ever.
You can see in the chart below all the other events that today’s sentiment is lower than. This is very notable.
You can see in the chart below all the other events that today’s sentiment is lower than. This is very notable.
As for small businesses, their optimism saw little change from last month, but the level is still low.
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Where does the market go from here?
Last month we were cautious on stocks after the sharp rise they saw and the very little chance we saw for a deal with Iran. However, the markets kept rising on the hopes for a deal. We continue to believe the deal terms look very unfavorable, at least from what’s been publicly discussed, and we find it hard to believe they’d be agreed to. Two months ago these terms would have been laughed at, but the market is looking to get back to normal, even if little remains resolved with Iran.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
