May turned out to be a bounce-back month for stocks after a difficult April, when all the major indexes were down. All of the major benchmarks were higher in May, led by the Nasdaq Composite, which jumped 6.9% to end the month at 16,375.
The S&P 500 gained 4.8% in May, closing the month at 5,278, while the Dow Jones Industrial Average rose 2.3% in May to reach 38,686. The small-cap Russell 2000 jumped 4.9% to end the month at 2,070.
However, May ended with a whimper as stocks were down almost across the board. Let’s take a look at what happened and why.
Roller-coaster week
The major large-cap indexes all fell in the final week of May, but it would have been much worse without the May 31 rally.
The S&P 500 ended a five-week winning streak by falling 0.5% last week. However, it outperformed the Dow Jones Industrial Average, which fell 1%, and the Nasdaq Composite, which dropped 1.1%.
In fact, things would have been a lot worse — particularly for the Dow — if not for the 570-point rally on Friday, which marked its best day of 2024 thus far. The lone outlier was the Russell 2000, which was flat for the week at 2,070.
There really was no major negative catalyst to drive down stocks last week, although the 10-year Treasury yield jumped on Wednesday to surpass 4.5%, the highest level since April. Of course, when Treasury yields spike over that 4.5% threshold, stock prices usually drop.
On the other hand, there was some good economic news. Consumer confidence rose in May for the first time since January. Investors greeted this news with mixed reactions, as some may fear that the good economic news could delay interest-rate cuts.
Later in the week, the April reading from the Personal Consumption Expenditures index was released on Friday, and it seemed to perk up investors. This key inflation gauge was in line with economists’ projections.
Inflation rose 2.7% year over year in April, which was expected, but there were some data points within the report that were better than anticipated. Namely, PCE minus food and energy prices was lower than the previous month, as was real PCE, which measures the prices of goods and services.
The PCE data spurred the markets higher on Friday, as inflation didn’t rise, and there were some solid indicators that it could move lower.
Hoka shoe maker among week’s top stocks
Overall, the first-quarter reporting period has been a strong earnings season. According to FactSet, 78% of S&P 500 companies topped earnings estimates in the first quarter, which is higher than the five-year average.
That momentum appears to be continuing in the second quarter, as analysts have increased their earnings-per-share estimates in aggregate by 0.3%. Typically, analysts reduce their EPS estimates in the aggregate during the first two months of a quarter, according to FactSet.
The top three stocks on the S&P 500 last week were Best Buy (NYSE:BBY), which climbed 21.8%; Deckers Outdoor (NYSE:DECK), which rose 20.9%; and Marathon Oil (NYSE:MRO), which climbed 12.4%.
Best Buy rose on earnings results that beat analysts’ estimates. While sales were down in the quarter, the company maintained its guidance for the upcoming quarter and full year as it expects sales to increase.
Deckers destroyed earnings estimates, posting strong quarterly results on May 23. The footwear manufacturer, which makes the Hoka and Ugg brands, also delivered robust earnings and sales expectations for the current fiscal year.
Marathon Oil rose on the news that it will acquired by ConocoPhillips (NYSE:COP).
Of the three, Deckers is the one to keep an eye on, as its brands have been best in class, and its outlook is robust.
