Looking Back at the Markets in May and Ahead to June 2022Learn more about this firm
Markets stabilized in May after one of the worst months since the start of the pandemic. While it wasn’t a great month, after the terrible start to the year, any improvement was welcome. U.S. markets were mixed, with the Dow and S&P 500 up slightly, while the Nasdaq was down but not nearly as much as in prior months. International markets and fixed income also showed small gains.
Interest rates. Once again, interest rates drove the markets, but this time, the news was good. As expected, the Fed hiked the federal funds rate by 50 bps at its May meeting. But the markets started to pull back from expectations of future hikes, signaling that inflation was starting to peak. Long-term rates ended the month at about the same level after peaking in the middle of the month, and that stabilization helped support markets.
The economy. We also saw signs that the economy, though softer, was stabilizing in May. All of the key metrics—job growth, consumer spending, and business investment—remained healthy. And while there were some signs of softening, especially in consumer confidence and housing, they did not appear to have affected the fundamentals.
Risks abroad. Finally, just as the inflation and economic worries pulled back, other worries started to moderate as well. The Ukraine war receded from the headlines as it turned from an immediate concern into a chronic one. Chinese Covid-19 shutdowns, and the risks to the supply chain, have not materialized and look like they will not. Across the board, the fears that drove the pullback at the start of the month have started to fade.
So looking back at May, we saw stabilization in the economy and markets, and, most importantly, in expectations. After seeing the markets react to rising worries at the start of the year, those worries started to moderate in May.