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Market Commentary - May 2024

Read the Spring 2024 WAA for our Market Quicktakes, Q1 Review, and Much More

May 2024

Stocks pulled back in April
ending 5-month winning streak

Following its FOMC meeting in early November 2023, the Fed pivoted on its rate policy and signaled they were done raising interest rates. That put a charge into the markets to year end, and to start 2024. Ending March, US stocks were up 20%-28% across the board hitting all-time highs following the Fed pivot and a pullback or consolidation was on borrowed time.

The 5-month winning streak for stocks ended in April with a market pullback as Fed rate cut expectations ebbed. Hotter-than-expected CPI inflation readings in March, following February's higher number, caused interest rates to rise sharply across the yield curve in April raising higher-for-longer interest rate concerns for the market. Despite significant progress on the inflation fight over the past 21 months, from 9.1% in June 2022 to 3.5% in March, the last mile to the Fed's 2% target is proving to be a challenge.  Not only has the market fallen in line with Fed’s longstanding rate cut guidance in 2024, but it has further reduced expectations to just one or two and pushed the start of the cuts out to September at the earliest. At the beginning of the year, the market was looking for 6-7 cuts and the first one in March. Continued solid economic and jobs data coupled with the sticky inflation readings recalibrated both the stock and bond markets in April. Q1 GDP was lower than expected at 1.6% annualized but corporate earnings have been strong with 78% exceeding expectations, according to FactSet.

Small- and mid-caps led on the downside in April, dipping 7.1% and 6.1% respectively, but losses were widespread. The benchmark S&P 500 was down 4.2% for the month but maintained its YTD leadership up 5.6%. The tech-heavy Nasdaq gave up 4.4% to close April up 4.3% YTD, while the Dow lost 5%. Looking at the trailing 12-months, the gains have remained strong up double-digits across the board and paced by Nasdaq and the S&P 500, posting gains of 28.1% and 20.8% respectively.

Overseas, developed market stocks slipped as well with the benchmark MSCI EAFE index edging lower 2.8%, while Emerging Markets eked out a 0.5% gain.

With interest rates rising sharply across the yield curve, the benchmark Bloomberg Aggregate Bond Index fell 2.7% in April, finishing the month down 3.3% YTD. The 10-year Treasury Note yield rose 0.49% to close at 4.69%.

Pullbacks, consolidations, and corrections are normal for the market every year, especially after an extended powerful move higher. This is part of the market process for long-term investors. Our partners at Vanguard provide some additional insight in their piece Remember: Recoveries have rewarded patience.

May Update - Markets rebound strongly to start May

The Fed met at the beginning of May and as expected announced no change in policy rates. The Fed noted the economy has continued to “expand at a solid pace,” job gains have remained strong, and the unemployment rate has remained low at 3.8%.  However, the stickier and hotter-than-expected February and March inflation readings have not given the Fed enough confidence to cut interest rates anytime soon.

Nonetheless, the market gauged the Fed’s comments as not as "hawkish" as expected (bad) and stocks have rebounded strongly to start May.  The Dow, S&P 500, Nasdaq, Russell 2000, and S&P 400 have all risen 3.7% to 4.6% month-to-date ending May 10th. The Dow, S&P 500, and Nasdaq are less than 1% from all-time highs. Bonds have rallied as well, with interest rates dipping across the yield curve. The 10-year Treasury Note yield has dipped 0.19% to 4.50% and the Bloomberg Aggregate Bond index has gained 1.4%, cutting its loss for the year to 2%.  

Despite the challenges in April, the economic soft-landing narrative remains intact. While volatility may continue in the near-term along with anticipated uncertainty in a presidential election year, we remain cautiously optimistic for the balance of the year.

We continue to encourage investors:

  • Remain well-diversified
  • Maintain discipline and patience
  • Focus on the long-term
  • Review your Risk Tolerance

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio.

~Your Nelson Securities Team    

*Past Performance is No Guarantee for Future Results