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May Economic Update

Market Summary

Several robust economic reports and a healthy start to the corporate earnings season helped to move stocks higher for the month of April. Data released to support signs of an economic recovery included an impressive jobs report, a jump in retail sales, and a pickup in housing starts. In addition, the accelerating pace of vaccinations helped investor sentiment. The Dow Jones Industrial Average gained 2.71% while the S&P 500 Index picked up 5.24%. The Nasdaq Composite led, climbing 5.40%. (1,2,3,4)

Corporate Earnings Reports

Investors were anxious to see what first-quarter profit reports would hold when reporting began mid last month. With over 40% of S&P 500 companies who have already reported, the earnings-per-share growth is now estimated to be 29.3%; well ahead of the 12.2% EPS growth rate that analysts had expected at the start of the year. (5,6)

Surprisingly, stocks traded mostly sideways during the second half of April which may imply these stellar earnings reports were already priced into the market. The solid run-up during the first half of the month did hold for an impressive month-over-month return supported by these reports.

The Federal Reserve

As expected, the Federal Reserve announced that its current monetary policies would remain unchanged until the labor market has fully recovered, in addition to inflation meeting the Fed’s stated goal of an average of 2%. (7)

"Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” said Federal Reserve Officials in a prepared statement following the two-day policy meeting which ended on April 28.

The Fed’s position has been that any inflation will be transitory (i.e. temporary), requiring no change to its current monetary stance. However, the biggest worry for investors is that the Fed may be misreading the current rate of inflation. Many analysts see inflation layered into the economy - from the prices of crops and lumber to metals and industrial products – which has caused apprehension that inflation may not be fleeting.