Monthly Market Recap – May 2024

May Recap:


Data released in May suggested that price pressures may have eased back just slightly in April. The m/m change in Core CPI fell 10 basis points sequentially to +0.3%, leaving the y/y figure at +3.4%. Similarly, the m/m change in the PCE Core Deflator also fell 10 basis points to +0.2%, with the y/y figure holding steady at +2.8%.

Monetary Policy:

May featured what might be termed “a meeting in two parts,” at least in terms of how financial markets reacted. At the conclusion of the FOMC meeting on May 1st, markets breathed a sigh of relief that the committee did not appear to be seriously contemplating rate hikes to combat sticky inflation. Rates fell across the curve in early May as a result, while Fed funds futures markets priced in a second rate cut prior to year-end. However, when the minutes from that meeting were released on May 22nd, investors were discouraged by the very clear reminder that many committee members lacked confidence that inflation was sufficiently under control to seriously contemplate rate cuts in the near term. Odds of a second rate cut in 2024 fell to roughly 50/50 by month end.


Data released in May was mixed. The labor market remains strong but is gradually normalizing: new jobless claims remain low at ~220k per week, but job creation slowed (175k nonfarm payrolls added) and unemployment ticked higher by 10 basis points to 3.9%. Consumer confidence indicators were also mixed: the Conference Board’s index rebounded 4.5 points to 102.0, while the University of Michigan saw an 8 point decline to 69.1 with weakness in all components. Meanwhile, persistently high mortgage rates appear to have stalled any upward momentum in housing sector activity. Q1 GDP growth was revised lower by 30bp to +1.3% q/q annualized, but Q1 corporate earnings growth was robust at roughly +6% y/y for the S&P 500, well in excess of inflation.

Bond Market:

Treasury yields see-sawed, initially falling after what felt like a dovish FOMC meeting, only to reverse course and retrace most of that ground later in the month after the meeting minutes were released. Finally, yields fell again after the May 30th release of a downwardly revised Q1 GDP print, leaving bond prices higher on the month. Credit spreads remained steady throughout at levels that are very tight by historical standards.

Stock Market:

Stocks of nearly all stripes were higher in May, aided by the tailwinds of lower rates, solid corporate earnings, and renewed enthusiasm for A/I themed companies after yet another blowout earnings report from Nvidia. Falling oil prices pushed the energy sector slightly into the red, but all other sectors in the S&P 500 finished higher, led by technology stocks.

S&P 500 Total Return by Sector – May 2024

Albion’s “Four Pillars”:

Economy & Earnings

The US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.


The S&P 500’s forward P/E of 20.3x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest Rates

Futures markets imply that the Fed will cut overnight interest rates once or possibly twice in 2024, most likely at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.


After falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Rising oil prices driven by armed conflicts in Ukraine and the middle east are also a risk to the inflation outlook.

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