May Stock Market Recap

By: Stacey Nickens

Just as April showers have brought about the growth of May flowers, so has reopening and COVID vaccine distribution brought about the growth of the American economy. In May, we saw additional evidence that the United States is showing strong economy growth, exhibiting many of the metrics common at the beginning of a new business cycle. With such growth, the S&P 500 finished May with year-to-date (YTD) gains of 11.93%, and the Dow Jones finished the month up 12.82% YTD.

The service and hospitality industries, amongst others, have continued to benefit from vaccine rollout and reopening trends, and with US consumers having accumulated over $2.1 trillion in savings during the pandemic, the economy is getting a boost from pent-up consumer demand.

However, inflationary pressures continued throughout the month. Prices are on the rise due to disrupted supply chains, the high cost of raw materials, and shipping challenges. Accordingly, May saw the highest 10-year, breakeven inflation rate since 2011. All eyes are on the Fed’s June 15-16 meeting as some wonder if the Fed will begin tapering their monthly, $120 billion asset purchases. Despite such speculation, Fed officials maintain that they believe this inflationary pressure to be a transitory issue. These officials expect inflation to drop back to around 2% through 2022 and 2023. Even still, investors could make moves to hedge against inflation in their portfolio.

Between inflationary anxiety and stretched valuations, growth underperformed value. Materials, energy, financials, and industrials were the month’s strongest performing sectors. Commodities pushed the materials sector to the head of the pack, and higher crude oil prices boosted energy’s performance. Financials benefited from the performance of banks, while industrials saw growth due to strength amongst building products.

Overall, the economy posted solid results throughout the month of May. Initial jobless claims continue to drop to post-pandemic lows, falling to 385,000 during the week ending in May 29. Similarly, May ISM Services hit a record-high of 64. While May’s nonfarm payrolls slightly missed expectations, nonfarm payrolls still increased by 559,000. Private payrolls grew 978,000 in May, the fastest rate of growth in nearly a year. The unemployment rate dropped to 5.8%.