May 2023 Financial Market Update
Before we dive into the past month, here’s your friendly reminder that Mother’s Day is on the 14th. We hope you find fun ways to celebrate the moms in your lives!
April was mostly quiet, with choppy trading across U.S. equity markets. During the month, the overarching narrative among talking heads seemed to be declining volatility and an “impending recession” forecast for later in the year. That was not exactly the chat we wanted to hear from those heads.
Tallying the month of April, the S&P 500 rose by 1.46%[i], the Nasdaq 100 increased by 0.49%[ii], and the Dow Jones Industrial Average climbed by 2.48%[iii].
Mostly strong earnings from tech companies buoyed the markets towards the end of the month (even with the multiple rounds of layoffs that have made headlines). Revenues have been impressive, too. As of April 28th, 74%[iv] of S&P 500 companies reported actual revenues above estimates.
This revenue data is above the five-year average of 69% and the 10-year average of 63%. Not bad at all!
Positive earnings[v] from Meta Platforms coincided with a declining GDP metric on the last Thursday of the month and provided a backdrop for stocks to rise at month’s end.
A highly anticipated gauge of the economy, first-quarter gross domestic product (GDP) missed mightily, showing a 1.1% growth rate[vi] versus expectations for 2.0%.
U.S. equities loved the signs of a slowing economy, which could signal that Federal Reserve rate hikes are having the intended impact. The S&P 500 and Dow Jones Industrial Average posted their largest daily gains since January[vii] on the day GDP data was released.
Monthly Inflation Update
We continue to see some signs of mixed and easing inflation data.
Consumer: March headline Consumer Price Index (CPI) data, released mid-month, showed a 0.1% monthly rise and a 5% rise year-over-year—both below estimates[viii].
March’s Core Personal Consumption Expenditures (PCE) figure, the Fed’s preferred inflation indicator, came in at expectations but remains stubbornly high. Data[ix] showed a 0.3% increase month over month and a 4.6% year-over-year increase. Consumer spending also stalled, according to the data[x].
Signs of annual inflation having peaked are evident, but it is more about the road back to the Fed’s 2% target.
Wholesale: The Producer Price Index (PPI) fell 0.5%[xi] in March from the previous month, below the 0.0% estimate by economists polled by Reuters[xii] and the biggest drop[xiii] in 3 years.
On an annual basis, wholesale prices are up 2.7% versus February’s reading of 4.9%. This reading is the lowest annual rate of wholesale inflation since January 2021[xiv].
Tens: Benchmark 10-year note yields were little changed in April, settling near 3.453%[xv] to close out the month versus the previous monthly close near 3.493%.
Twos: Shorter-duration notes were also little changed on a monthly basis, with the 2-year note yield ending April near 4.008%[xvi] versus March’s monthly settlement value near 4.029%.
Nonfarm payrolls grew by 236,000[xvii] in March, close to the final expectations of 238,000 by Dow Jones economists.
While near expectations, the number is much lower than the upwardly revised 326,000 additions in February and the smallest gain since December 2020. The data could represent an early sign of slowing in the hot labor market.
And while jobs added may have begun to cool, labor costs remain stubbornly high. On the last trading day of April, the Employment Cost Index showed that workers were compensated 1.2% more in Q1[xviii] versus the prior quarter against expectations of 1.1%.
Much like inflation data, there are some mixed signals across the labor market, but this makes sense as it will most likely not be a straight decline to the Fed’s target of 2% inflation. Instead, we can expect more of a lengthy and bumpy ride so put on the seatbelt and get comfy.
No April Showers
April was a quiet trading month, with narrow price ranges in the major U.S. equity indexes. While television figures seemed to endlessly discuss an impending recession, the stock market bulls won at month’s end.
This suggests a clear benefit of being a long-term investor—not getting caught up emotionally in a potentially incorrect or emotional short-term narrative. We know we have said it before, but staying the course is often your best bet.
Disclosure: Emerald Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
[i] (2023, April 29). Tradingview.com. S&P 500 Index. [Online] Available at: TradingView Chart — TradingView
[ii] (2023, April 29). Tradingview.com. Nasdaq 100 Index. [Online] Available at: TradingView Chart — TradingView
[iii] (2023, April 29). Tradingview.com. Dow Jones Industrial Average Index. [Online] Available at: TradingView Chart — TradingView
[iv] Butters, J. (2023, April 28). Insight.factset.com. S&P 500 Earnings Season Update: April 28, 2023. [Online] Available at: S&P 500 Earnings Season Update: April 28, 2023 (factset.com)
[v] Vanian, J. (2023, April 26). Cnbc.com. Meta shares pop 12% after company reports first sales increase in four quarters, issues optimistic guidance. [Online] Available at: Meta Q1 2023 earnings report (cnbc.com)
[vi] Cox, J. (2023, April 27). Cnbc.com. U.S. GDP rose at a 1.1% pace in the first quarter as signs build that the economy is slowing. [Online] Available at: GDP Q1 2023: (cnbc.com)
[vii] Harring, A. & Hakyung, K. (2023, April 27). Cnbc.com. Dow and S&P 500 post best day since January; Nasdaq climbs 2% as Big Tech rallies: Live updates. [Online] Available at: Stock market today: Live updates (cnbc.com)
[viii] Cox, J. (2023, April 12). Cnbc.com. Inflation rises just 0.1% in March and 5% from a year ago as Fed rate hikes take hold. [Online] Available at: ‘CPI March 2023: Inflation rose 0.1% in March, and 5% from a year ago’ (cnbc.com)
[ix] Pickert, R. (2023, April 28). Bnnbloomberg.ca. Inflation Gauge Watched by Fed Shows Prices Still Rising While Consumer Spending Stalls. [Online] Available at: Inflation Gauge Watched by Fed Shows Prices Still Rising While Consumer Spending Stalls – BNN Bloomberg
[x] Pickert, R. (2023, April 28). Bnnbloomberg.ca. Inflation Gauge Watched by Fed Shows Prices Still Rising While Consumer Spending Stalls. [Online] Available at: Inflation Gauge Watched by Fed Shows Prices Still Rising While Consumer Spending Stalls – BNN Bloomberg
[xi] Cox, J. (2022, November 15). Cnbc.com. Wholesale prices rose 0.2% in October, less than expected, as inflation eases. [Online] Available at: Wholesale prices rose 0.2% in October, less than expected, as inflation eases (cnbc.com)
[xii] Reuters. (2023, April 13). Reuters.com. U.S. producer prices unexpectedly fall in March. [Online] Available at: U.S. producer prices unexpectedly fall in March | Reuters
[xiii] McColl, B. (2023, April 13). Investopedia.com. Wholesale Inflation Falls to the Lowest in Three Years as Energy Prices Tumble. [Online] Available at: Wholesale Inflation Falls to the Lowest in Three Years as Energy Prices Tumble (investopedia.com)
[xiv] Dodge Construction Network. (2023). Construction.com. Construction Industry Poised for Savings as Producer Prices Slow. [Online] Available at: Construction Industry Poised for Savings as Producer Prices Slow | Dodge Data & Analytics
[xv] (2023, April 29). Tradingview.com. CBOE 10 YR Treasury Note Yield. [Online] Available at: TradingView Chart — TradingView
[xvi] (2023, April 29). Tradingview.com. US Government Bonds 2 Yr Yield. [Online] Available at: TradingView Chart — TradingView
[xvii] Cox, J. (2023, April 7). Cnbc.com. Job growth totals 236,000 in March, near expectations as hiring pace slows. [Online] Available at: Jobs report March 2023: (cnbc.com)
[xviii] Mena, B. (2023, April 28). Cnn.com. US worker pay gains picked up in the first quarter. [Online] Available at: US worker pay gains picked up in the first quarter | CNN Business