May 2024 Market Insights

BY: RYAN P. JOHNSON, CFA, CFP® - MANAGING DIRECTOR OF INVESTMENTS

Stocks climbed to new highs this month after a good corporate earnings season and modest inflation reports. To recap what moved interest rates, the mid-April Consumer Price Index (CPI) report was hotter than expected, which sent interest rates higher and affected stock sentiment. The mid-May CPI report showed improvement and interest rates circled back to where they were before the April report. Fed interest rate cuts are likely many months away.

Stocks: Investors were excited to see the S&P 500 hit another new high and see the Dow Jones Industrial Average above 40,000 for the first time. The S&P 500 has gained over 11% so far in 2024. First quarter corporate earnings grew over 5% year-over-year, which is better than what was expected before the earnings season began. The forward price-to-earnings ratio, or P/E, for the market is over 20, compared to a 10-year average of less than 18. Still, continued earnings growth can support higher stock prices, with double-digit percentage earnings growth expected both this year and next. Regular rebalancing, profit-taking, and realizing some capital gains have been common in our clients’ portfolios. 

Bonds: We do not expect inflation to re-accelerate and therefore we expect interest rates to be fairly range-bound in the near term. Over the past several years, as interest rates generally increased, bond prices generally fell, lowering total returns from bonds. Going forward, if interest rates stay fairly stable, bond returns should look more attractive than they have in the past, given current Treasury rates around 4.5% and A-rated corporate bond rates around 5.5%. We feel that having some Treasury exposure right now is worth the lower yield to have an attractive source of funds, planned or otherwise, if a market downturn occurs.

Economy: The May jobs report showed 3.9% unemployment, higher than April, but still historically attractive. Average hourly earnings increased 3.9% from a year ago, lower than 4.1% in the previous report. Other readings have been modestly encouraging on the inflation front, including this week’s CPI reading that showed core CPI of 3.6%, which was lower than the previous reading. The price of oil has fallen from the mid-$80s to around $78 per barrel recently. Lastly, core producer inflation (PPI) of 2.4% was slightly higher than expected, but the previous month’s data was revised lower.

Federal Reserve: The Fed may cut rates once or twice this year. Current market expectations are focused on September and December for 0.25% cuts from the current Fed Funds rate of 5.33%. The Fed did take a step towards being less restrictive recently, by lowering the amount of bonds it allows to roll off its balance sheet each month. 

Buckingham is here for you: Buckingham Advisors continues to welcome new households and small businesses to our Family of Clients! Thank you to our clients for your referrals and continued support. Our focus remains on serving each family, each business, and each foundation with special attention to what matters most to them. If you found this edition of Market Insights informative, please forward this issue on to others. To get in touch directly, please use the following link: https://mybuckingham.com/contact. 

Thank you for your continued trust and referrals.

Ryan P. Johnson, CFA, CFP®
Managing Director of Investments

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RISKS AND IMPORTANT CONSIDERATIONS

Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.