US equity markets capped off a banner month in late May, posting solid weekly gains and fresh record closing highs. The rally was largely propelled by falling crude oil prices, optimism surrounding potential peace agreements with Iran, and robust corporate earnings led by the artificial intelligence (AI) sector.
For the abbreviated holiday week, the Dow Jones Industrial Average climbed 0.9% to cross the 51,000 milestone for the first time. The S&P 500 added 1.4% to reach 7,580.06, clinching its ninth consecutive weekly winning streak—its longest such run since late 2023. Meanwhile, the Nasdaq Composite gained 2.4% for the week, buoyed by an eye-popping 32.8% surge in Dell Technologies stock following a blowout earnings report and raised AI-fueled forecasts.
U.S. Treasury yields eased at the end of the trading week following a major sell-off in mid-May, closing the week on a high note. Yields began the period retreating from steep multi-month highs (with the 10-year peaking at 4.70% and the 30-year at 5.20%). The late-week dip was primarily driven by easing geopolitical tensions as well as cooler than expected inflation data.
· Although there may be froth within certain areas of technology, specifically memory, we do not believe that the entire sector is in a bubble. Compare the returns of the tech laden NASDAQ Composite for the three-year period leading up to the ultimate peak on March 10, 2000, when the index returned an average of 56.28% per year, to the most recent three-year figure of 27.81%, a little less than half. In fact, for the one year ending March 10, 2000, the NASDAQ rocketed (yes, an intended reference to the upcoming, much ballyhooed IPO of SpaceX) 109.89%, far above the most recent year figure of 41.12%. Regarding the overall market – froth in some sectors, a bubble in others – a need to take a breather after this recent advance.
· The late 1990s, a period former Federal Reserve Chairman Alan Greenspan warned us about on December 5, 1996, during an address referred to as the “Irrational Exuberance” speech at the American Enterprise Institute, was one that somewhat resembles the market of today. However, and as was partially noted above, there are meaningful differences, not the least of which being that the market of the late 1990s was built upon speculative promises of future riches whereas this market is built upon companies with billions of dollars of profits, free cash flow and pristine balance sheets.
· Trump Accounts, a new type of custodial, tax-deferred savings program designed to help American children build long-term financial security will officially launch on July 4, 2026. Any U.S. citizen under the age of 18 with a valid Social Security number is eligible. As part of a pilot program, children born between January 1, 2025, and December 31, 2028, qualify for a one-time, $1,000 government seed contribution from the U.S. Treasury. Family members, friends, and the child can contribute up to a combined total of $5,000 per year. For obvious reasons, there is no earned income requirement. IN addition, employers can contribute up to $2,500 of that annual total on a pre-tax basis. By law, funds are restricted to low-cost, unleveraged broad U.S. equity index funds (tracking the overall stock market) with annual fees capped at 0.10%. Finally, to preserve long-term growth, absolutely no withdrawals are allowed before the child turns 18. Once the beneficiary reaches adulthood, the asset transfers to them and standard traditional IRA guidelines apply, including a 10% penalty on early distributions made before age 59½ unless a qualified exception is met such as for qualifying education expenses or for first-time home buyers. We say, bravo!
Economic Data That Drove Market Sentiment This Past Week…
· The U.S. Census Bureau reported that New Single-Family Home Sales fell 41,000 during April to a Seasonally Adjusted Annualized Rate (SAAR) of 622,000 from 663,000 during March (11.3% y/y). Sales of New Homes have fallen 39.7% from their peak of 1.031 million in October 2020 and 51.4% from the peak in July 2005 of 1,279,000 units. However, they have risen 19.8% above their July 2022 low of 519,000. The median sales price of a new home rose 8.0% (2.2% y/y) to $422,500 in April from $391,100 in March, this as the average sales price of a new home rose 0.7% (-1.1% y/y) to $508,800 in April from $505,200 in March. The average price is 6.0% below the high of $541,200 in July 2022. These sales prices are not seasonally adjusted. The number of unsold new homes on the market rose 1.7% to 489,000 (-2.2% y/y) from 481,000 in March. The seasonally adjusted months’ supply of new homes for sale rose to 9.4 months in April from 8.7 in March as the median number of months a new home stayed on the market rose to 3.6 months during April from 3.5 during March, well off the high of 5.1 months in March 2021. (Source, U.S. Census Bureau)
· First Quarter Gross Domestic Product (first revision), as reported by the Commerce Department, a tally of the output of all goods and services in the United States, rose at an annualized rate of 1.6% (2.6% y/y), down from an initially reported 2.0% and a substantially improvement from 0.5% recorded during Q4. Real Final Sales to Domestic Purchasers rose at a revised annuliazed rate of 2.4%, down from an initially reported 2.5% and up from 1.8% during the fourth quarter. Government Spending (Government Consumption Expenditures and Gross Investment), rebounded by an unrevised 4.4%, in great part due to the reopening after the shutdown. The PCE Price Index rose at an unrevised annual rate of 4.5% during Q1, compared to 2.9% during the prior quarter. While the PCE Price Index Excluding Food and Energy rose at a revised SAAR of 4.4% during that same quarter, up from an initially recorded 4.3%. (Source, U.S. Bureau of Economic Analysis)
· The Bureau of Economic Analysis reported that Personal Income remained unchanged during April after rising 0.5% in March. However, after adjusting for inflation, Personal Income slid 0.1% during April this after climbing 0.5% in March. Consumer spending, or Personal Consumption Expenditures rose 0.5% (5.9% y/y), after climbing 1.0% during March. However, when adjusting for inflation, real consumer spending edged up by 0.1%. Inflation remains a key factor, as the PCE Price Index rose 0.4% for the month and by 3.8% year-over-year. The core index, which excludes volatile food and energy costs, rose 0.2% from the previous month and by 3.3% y/y. Amidst these shifts, the Personal Saving Rate slipped to 2.6% of disposable income, down from 3.6% in March. (Source, U.S. Bureau of Economic Analysis)
· The Conference Board’s Consumer Confidence Index fell to 93.1 (-5.4% y/y) during May from 93.8 in April. The present situation index fell to 121.2 in May from 124.4 (-10.6% y/y) while the expectations component rose by 1.0 points to 74.4 (+1.1% y/y) from 73.4 during April. Those surveyed saying that jobs are “hard to get” fell to 18.6% of respondents during May from 19.4% in April while those claiming that jobs were “plentiful” fell to 25.5% of respondents from 26.9% during those same months. (Source, The Conference Board)
Economic Reports scheduled to be released this week, include the following – on Monday, April Construction Spending and the May Manufacturing Index from the Institute for Supply Management; on Tuesday, April Job Openings and Labor Turnover Survey (JOLTS); on Wednesday, April Factory Orders as well as the May Service Sector Index from the Institute for Supply Management; on Thursday, Initial Claims for Unemployment Benefits; and, on Friday, May Non-Farm Payroll Report, May Unemployment Rate and April Consumer Credit.
Several potentially market moving companies are scheduled to report earnings, to include Hewlett Packard Enterprise (HPE), Credo Technology (CRDO), Palo Alto Networks (PANW), Dollar General (DG), Ulta Beauty (ULTA), CrowdStrike (CRWD), Medtronic (MDT), Veeva Systems (VEEV), Broadcom (AVGO), Five Below (FIVE), Rubrik (RBRK) and lululemon athletica (LULU).