Watch the CPK Market Action Report: May 2024
The once, very strong conviction that there would be multiple rates cuts coming in 2024 has been all but eviscerated from inflation rising once again leaving the equity markets with virtually nowhere to go but down. Will investors maintain their bullish outlook by turning their focus to other areas of strength or will “higher for longer” position of the Fed just be too much to overlook?
Watch the Market Action Report now:
Market Action Report
May 2024
INTRO TAG
The once, very strong conviction that there would be multiple rate cuts coming in 2024 has been all but eviscerated from inflation rising once again leaving the equity markets with virtually nowhere to go but down. Will investors maintain their bullish outlook by turning their focus to other areas of strength or will “higher for longer” position of the Fed just be too much to overlook?
That action starts now!
INDEX PERFORMANCE RECAP
After three straight months of gains, equities were handed a little gut punch. The S&P 500 lost 3.97% in its first monthly decline for 2024. The Dow Jones Industrials fell 4.43% and the Nasdaq Composite dropped 4.51%.
EQUITY UPDATE
There really wasn’t any place to hide out in April other than in commodities. Inflation data came in stronger than expected and shifted the outlook from lower rates to higher for longer and that ultimately drove stocks down. By month end, less than 30% of the stocks in the S&P 500 were trading above their 50-day moving average. This has definitely created an oversold position and a potential positive opportunity for short-term bulls. Corporate earnings generally exceeded expectations for the first quarter with large cap tech posting very strong earnings and confirming that the AI growth theme remains intact.
BOND UPDATE
Bond yields all spiked higher on the uptick news for inflation. The 5yr rose to 4.72%, the 10yr to 4.68% and the 30yr jumped to 4.79%. It’s reasonable for the 10 year to digest some of this sharp rise in yields but barring a dovish surprise from the Fed or suddenly bad economic data, the trend in yields remains higher and the market dynamic remains the same: The higher yields go, the stronger the headwind on stocks.
COMMODITY UPDATE
May WTI Crude spiked higher at the beginning of the month only to close slightly lower at $81.93/barrel. Tentative optimism regarding progress towards a ceasefire deal between Israel and Hamas weighed on the oil market as did the new whiff of stagflation in the economic data. Bottom line, oil remains in an uptrend but a period of consolidation has gripped the market since early April leaving the futures market range bound in the low $80s.
Copper has been the upside standout in the commodity complex in recent sessions as it extends its 2024 rally amidst a pause in the gold rally, which was previously leading the asset class higher. After a slight retracement, May 2024 High Grade Copper closed out at $4.56. There are multiple influences on copper between the uncertainties surrounding the threat of Chinese smelter cuts and optimism that AI will drive massive demand in the years ahead. Those bullish factors aside, a downside reversal in copper would be a caution signal for the global economy as well as risk assets ranging from stocks to other demand-sensitive commodities such as oil.
Gold pulled back off its high for the month to close out at $2,291.40 an oz. The rally in gold in 2024 has been fueled by rising inflation expectations and occurred in spite of higher yields and a stronger dollar. The risk to the gold market this week is a sharp reversal in market-based inflation expectations but largely steady or stubbornly strong price action in the dollar and yields. If another wave of profit taking grips the market like we saw last week, and futures breakdown through initial support at $2,320/oz. like we saw last week, look for gold to hold the next key support zone near $2,170.
CURRENCY UPDATE
The dollar continued its rise again in April closing out at $106.31. Currency markets previously had the Fed much more hawkish than the ECB and BOE and while the Fed isn’t cutting anytime soon, we’re seeing some doubts emerge about whether the BOE will cut in early summer and just how committed the ECB is to a series of cuts. That’s helping those currencies rally modestly vs. the dollar.
ECONOMIC UPDATE
At month end, Total employment costs (wages plus benefits) ran hotter than expected and hit the highest level since 2022 in what is the latest inflation data point to imply firming price pressures.
Wage increases were pretty uniform across private industry and government jobs and implies there isn’t some strange outlier propping up the data. While these wage gains aren’t spectacular, they are solid and since a tight labor market and higher wages can fuel inflation, this report will help further solidify the Fed’s likely “on hold” policy stance going forward, which means higher yields and stronger headwinds on stocks.
National home price indices are far from perfect measures of home prices, but they’re the best indices we have and the bottom line from both was clear: Home price gains re-accelerated in February and that’s yet another small, but notable, number that implies stickier inflation. This is another unwelcomed metric that implies inflation (as measured by CPI and other statistics) isn’t falling as quickly as previously hoped, and that rate cuts anytime soon remain unlikely.
THE WRAP
Market sentiment has become more cautious, and companies continue to report rising caution among their customers. Despite the easing seen in April, the S&P remains significantly higher than its lows in October 2023.
CPK FOCUS
For the month of May, our models continue to hold a 50% allocation to the money market.
Our broad focus remains on Domestic Equities and International Equities.
Our focus in Domestic Equities is on Large Cap Growth, Large Cap Blend and Mid Cap Blend with an emphasis on Technology, Industrial, Consumer Cyclical and Financials.
In International Equities, our focus is still on Europe Emerging, Latin America and Europe Developed.
CPK DISCLAIMER
As a reminder, my current allocation is not a recommendation. Regardless of what happens next, investors like you need to have a simple and yet solid financial plan that reduces RISKS, COSTS and TAXES while securing the necessary income you need to maintain your lifestyle throughout retirement.
If you don’t have a plan OR you’re not comfortable with the plan you currently have, call me today to get pointed in the right direction.
I’m Chad Kunc and that puts a wrap on the May 2024 Market Action Report. Thanks for joining me. It’s time for me to get back to the markets.
And that action starts, NOW!