April Was A Sinkhole, May Was A Geyser
May was a rebound month from a poor April showing in the stock market, with the S&P500 rising 6.2%. This marked one of the best May periods since 1990. “Sell in May and go away” has not worked as a trading strategy this year. Year to date, the Dow Jones Industrial Average is down 0.3%, the technology-heavy Nasdaq is up 0.8%, and the S&P 500 is up 1.5%. Small cap stocks are still down about 6% this year. This masks the wild swings that markets experienced recently, while the S&P 500 is only off 3% from its record highs. The 10-year Treasury yield has since backed off to about 4.3%, adding some fuel to a “risk-on” market.
Treasuries rallied yesterday after data on services growth expectations and employment added to speculation that the Federal Reserve will lower interest rates later this year. While the combined data were weaker than expected, eyes will be focused on Friday’s BLS jobs report in determining the course for monetary policy. Nonfarm payrolls are expected to increase 125,000 following a 177,000 gain in April. The unemployment rate is expected to remain at 4.2%, though annual wage growth is expected to slow for a sixth straight month. Steady as she goes.
Economic Data Mixed
Recent economic data has been signaling mixed growth going forward. The ISM Services Index registered at 49.9%, indicating slight contraction. The ADP employment report revealed that 37,000 nonfarm private jobs were added in May, down from 60,000 in April and below an expected 111,000 addition. This is the lowest level since March 2023 when there was a reduction of 53,000 jobs. There is no clear short-term correlation between the ADP and BLS employment reports. ADP’s monthly payroll number has been off from the BLS figure by an average of about 84,000 since August 2022. However, the broader trends show that hiring is on a slower trajectory this year.
On the job demand side, US job openings (JOLTS report) unexpectedly rose in April in a reasonably broad advance, indicating demand for workers remains healthy despite heightened economic uncertainty. Available positions increased to 7.39 million from a revised 7.20 million reading in March, according to Bureau of Labor Statistics. The advance in openings was driven by professional and business services as well as health care and social assistance. While state and local education led to a decline in overall government openings, vacancies in the federal government rose. The rise in job openings, along with steady hiring and low unemployment, support the Fed’s assertion that the job market is holding steady.
Auto Sales Stalled Out In May
U.S. light vehicle sales stalled out in May by the most in about five years following a rush by auto shoppers during the previous two months to beat anticipated price hikes, driven by 25% tariffs on imported automobiles. The seasonally adjusted annual rate (SAAR) of light vehicle sales plunged to 15.65 million units in May from a revised 17.25 million in April and 17.83 million in March. May’s drop of about 1.6 million was the largest since the onset of the Covid pandemic in 2020. Ford Motor#, however, reported a 16.3% year-over-year U.S. sales increase for May, as the automaker continues an employee pricing program. Sales for Ford were led by a 17.2% increase in traditional internal combustion engine vehicles as well as a 29% jump in hybrid models. Those gains offset a 25% drop in sales of all-electric vehicles, primarily its electric F-150. Toyota, Honda, and GM all posted gains while total industry-wide sales in the U.S. were up slightly over the prior year period.
The Recent Beige Book Was Blue
The Federal Reserve Bank of St. Louis compiled the latest edition of the Beige Book using information gathered on or before May 23rd from business leaders and other contacts in each of the Fed’s 12 regional districts. Most regions described employment as flat, and there were widespread comments about uncertainty leading to delayed hiring. Wages continued to grow at a modest pace. Nine of the 12 Fed districts reported contraction in economic activity or no change in growth, though the rest reported slight growth. The current estimate for second quarter U.S. GDP was recently revised higher, calling for 4.6% growth. Higher personal consumption expenditures and business equipment spending combined with less of a drag from net exports were the contributing factors. While the Fed is holding pat on interest rate cuts, the European Central Bank lowered its rates this morning for the eighth time in just over a year with a lower inflation forecast.
In other volatile news, Italy’s Mount Etna volcano in Sicily erupted Monday. Mount Etna is Italy’s biggest volcano and one of the world’s most active. The latest eruption is the most intense since 2021, although eruptions occur multiple times per year. There were some earthquakes ahead of time that gave warning. Economic rumblings are also present around the world, though markets are taking those in stride for now. We would be more surprised if we did not see dislocations periodically in economic and inflation data given the potential impacts of changing tariff policies. Longer-term economic trends remain intact, but short-term market volatility suggests avoiding overheated areas of the market.
Mark Wahlberg turns 54 today, while Jeff Garlin is enthused to turn 63, and Kenny G. turns 69.
Christopher Crooks, CFA®, CFP® 610-260-2219