The heck with “Sell in May and go Away” – risk assets put in a fantastic month, with the S&P 500 up 6.3% (its best May since 1990) and the Nasdaq up 9.7%.
A better-than-expected earnings season (S&P 500 Q1 EPS were up 13% year on year, vs an expected 7% gain) and cooler than expected April CPI, PPI, and PCE prints were fundamental tailwinds for stocks.
From a policy perspective, the US and China agreeing to slash reciprocal tariff rates was arguably the most welcomed development in May, while the Fed held interest rates steady at 4.25% to 4.50% at its May meeting.
A look ahead…
The May Jobs Report released June 6th, fortunately showed more jobs were added last month than expected, and the unemployment rate held steady at 4.2%. For the time being the US consumer and the US economy are proving to be remarkably resilient. The consumer accounts for 70% of US GDP. If the jobs market is okay, the consumer should be okay and if the consumer is okay, the economy should be okay.
The Fed meets June 17th and 18th, and few on Wall Street are expecting a rate cut (though we will get an updated Summary of Economic Projections). An important development concerning the Fed happened last month when the Supreme Court signaled Chair Powell is legally protected from being removed by President Trump.
Given heightened concerns over the financial health of the US government, investors will keep an eye on the US bond market, specifically the yield on the US 30 Year Bond which hit a 19-month high of 5.08% on May 21st.
A look at a datapoint worth discussing…
As noted above, many investors are worried about the U.S’ fiscal health, which is understandable given total debt of $36 trillion, a budget deficit of 6% of GDP and a ratings downgrade that cost America its last AAA credit rating.
While not dismissing those concerns, we would point out we are not the only levered nation in the world (see map) and most US debt (about 75%) is held domestically.
General Government Gross Debt, Percent of GDP; Source, IMF, April 2025
