May brought steady economic growth alongside persistent inflation pressures, creating another month of mixed signals for investors. Equity markets posted strong gains, while higher energy prices and sticky services inflation kept the Federal Reserve cautious. This update summarizes the month’s key developments and what they mean for long‑term financial planning and investment management.
Market Strength Led by AI and Tech
Equity markets advanced in May, with technology‑heavy indices and AI‑focused Asian markets showing the strongest gains. Semiconductor companies and mega‑cap growth stocks carried most of the momentum, while value stocks, small caps, and defensive sectors trailed. The S&P 500 rose 5.15%, the Nasdaq 100 surged 10.49%, and the Dow Jones Industrial Average gained 2.78%.
Economic Growth Holding Steady
First‑quarter GDP registered 2.0% annualized before being revised to 1.6% in late May, and unemployment remained at 4.3%. Higher‑income households continued spending on services and experiences, while lower‑income consumers felt more pressure from elevated fuel and food prices. Investment tied to AI—particularly data centers and software—remained strong, helping offset weaker traditional capital spending.
Inflation and the Fed’s Difficult Balancing Act
Newly appointed Fed Chair Kevin Warsh, sworn in on May 22nd, steps into an environment where inflation remains above target. Core PCE rose to 3.3% in April, and markets now view a rate increase as the more probable next move. While officials would prefer to hold policy steady, higher energy costs and persistent services inflation have made that challenging.
Corporate Earnings Continue to Impress
Corporate results remained solid, with 97% of S&P 500 companies reporting actual earnings and 85% delivering a positive EPS surprise. Revenue surprises came from 81% of companies, and analysts raised Q2 earnings estimates by 2.5% during April and May—an encouraging shift, as estimates are more commonly revised downward early in a quarter.
Three Key Market Drivers
Short‑term yields continued to make cash and short‑duration bonds competitive with risk assets, while a strong dollar affected emerging markets and lowered returns for U.S. investors holding international positions. Oil proved to be the most influential variable, surging above $110 per barrel early in the month before easing below $90 on ceasefire signals. Its next move will play a significant role in determining the path of inflation.
How These Trends Connect
The broader economy remains resilient, though not without challenges. Inflation has settled at a higher level, and the risk ahead lies in an extended period of elevated prices that could eventually prompt a policy shift. Oil remains the swing factor in shaping the inflation outlook.
Equity markets show strength but remain concentrated, with earnings supporting the current trajectory while rate‑sensitive segments face pressure. Cash yields are appealing, and the dollar provides some insulation, reinforcing the importance of staying invested, staying diversified, and avoiding overly crowded trades.
At Bernard Wealth Management in Royal Oak MI, we continue to support clients through thoughtful wealth management, retirement planning, and ongoing financial planning. Our team is always available to help you understand how these developments may affect your long‑term goals. We encourage you to reach out for personalized guidance from our financial advisors.
