Market Recap – Week Ending May 31

Stocks Higher in May; Jobs Report on Friday

Overview: Stocks around the world were lower last week, but major indices finished higher in May with the S&P 500 higher by 5.0%, international developed stocks (MSCI EAFE) up 4.0%, and emerging markets (MSCI EM) higher by 0.6% for the month. Additionally, the Nasdaq Composite rose 6.9%, its best month since November 2023. In bonds, yields declined over the month, with the 2-year and 10-year Treasury notes closing out the month at yields of 4.89% and 4.51%, respectively. For May, the broad-based Bloomberg Aggregate taxable index returned 1.7%, while the municipal index was lower by 0.3%. Investors have been encouraged recently by continuing disinflation, with the Fed’s preferred measure of inflation, the core PCE Price Index, reporting in line with consensus at 2.8% last Friday. Markets also are monitoring the economy, with gross domestic product (GDP) last week revised down from 1.6% to 1.3% annualized in the first quarter. Looking forward, the most recent Atlanta Fed GDP Now model currently forecasts GDP growth of 2.7% for the second quarter of this year, well below the prior forecasts but still signaling a relatively strong economic backdrop. This week’s key economic data will come in the form of the jobs report on Friday, where the expectation is for an increase of 195,000 in nonfarm payrolls, with the unemployment rate expected to remain at 3.9%. Also included in the report is average hourly earnings, which are forecast to remain at 3.9% on a year-over-year basis. 

Update on Oil Prices (from JP Morgan): Brent crude oil prices closed at $82 per barrel on Friday, and while they have backed off from their springtime peak, they still look high relative to where they were five years ago, before the pandemic. However, it’s important to recognize almost all prices and wage rates are significantly higher today compared to five years ago. Between May 2019 and last Friday, Brent crude prices rose by 23%, but we estimate U.S. headline CPI has risen by the same amount. Therefore, in a very real sense, $82 per barrel is the new $63 per barrel. Real oil prices, excluding the shocks of the pandemic and Russia/Ukraine War, have remained relatively stable. In May 2019, a barrel of Brent crude cost $67 and, measured in constant May 2019 dollars, a barrel of oil today would cost $72 per barrel. Going forward, oil prices still will be vulnerable to supply and demand shocks. The conflict in the Middle East could continue to threaten supply, but so far it has not materially impacted oil prices. Additionally, OPEC decided to extend its voluntary supply cuts over the weekend, increasing uncertainty about future supply. On the other hand, demand pressures should be relatively steady. The Energy Information Administration expects global oil consumption to rise by only 0.8% in 2024 and 1.5% in 2025, reflecting, in part, sluggish Chinese demand growth, and global oil production should be able to handle demand growth of this magnitude. While the oil market remains volatile, oil in the $80s better reflects the impact of past inflation rather than portending an inflation surge ahead.

Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s, Bloomberg, Factset, CNBC.

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