Market Movers & Shakers

U.S. stocks closed out the month of May higher following a weak April. The S&P 500 and Nasdaq logged five consecutive weekly gains before closing lower the last week of May. While strength reappeared at the broader index level, looking under the hood of the market tells quite a different story. In May, the market-cap weighted S&P 500 was up 4.8% compared to a 2.8% advance in the equal-weighted S&P 500 – a 200 basis point difference in performance highlighting the outsized gains in the largest stocks in the market. In fact, more than half of the S&P 500’s gain in May can be attributed to 4 companies: Nvidia (up 26.8%), Apple (up 12.9%), Microsoft (up 6.8%) and Google’s parent company, Alphabet (up 6.0%). Market breadth was also notably weak in May despite gains at the headline level with just 50% of stocks in the S&P 500 trading above their 50-day moving average at month-end. Information Technology, Utilities, and Communication Services were the top performing sectors, while Energy, Consumer Discretionary, and Industrials were the largest underperformers. The 10-year U.S. Treasury yield settled at 4.50% while the U.S. dollar closed lower after four straight monthly gains. Mortgage rates once again jumped above 7%, setting a new high for 2024 and ratcheting up pressure on the housing market. Gold logged its third consecutive month of gains, while elsewhere in the metals space silver prices surged to the highest levels in more than a decade while copper prices hit all-time highs. WTI crude oil posted the largest monthly decline of 2024 in May, declining 6.0%, as concerns surrounding weakening U.S. demand hit prices. The VIX retrenched below 13 to close out May following a sharp reversal higher across major U.S. indices on the final trading day of the month.

Fresh economic data in May provided market participants with additional insight into the path of inflation, as well as the trajectory of the economy and the strength of the consumer. The latest personal consumption expenditures index (PCE), the Federal Reserve’s preferred inflation gauge, showed inflation progressed toward the Fed’s 2% target last month. April’s headline PCE index increased 0.3% month-over-month matching March’s headline PCE increase. Core PCE, which excludes the volatile food and energy categories, increased by 0.2%, meeting consensus expectations. On a year-over-year basis, Core PCE came in at 2.8% for the third straight month in a row, moderating at the lowest levels since March of 2021. Along with readings on inflation, the Commerce Department report included data on consumer spending. In April, consumer spending increased by 0.2%, missing estimates of a 0.4% increase and coming in well below March’s downwardly revised 0.7% increase. After adjusting for inflation, the spending numbers showed a 0.1% decline primarily driven by a 0.4% decrease in spending on goods and a modest 0.1% increase in services expenditures. Takeaways from the report were largely dovish as personal spending undershot expectations and was downwardly revised in March. Last week also provided markets with an update on Q1 GDP numbers, which were also revised lower to a seasonally adjusted annual rate of 1.3% from a previous reading of 1.6%. The revision lower noted softer consumer spending on large ticket goods such as cars, appliances and furniture. In aggregate the recent economic reports highlight slowing momentum to start 2024 after consistent positive surprises in 2023.

Updates & News*

As markets rallied from their April lows, the transition of new accounts and new deposits slowed as opportunities dried up a bit. The implementation of Tandem’s strategy typically takes 3-6 months, though transition speeds are dynamic as they will occasionally accelerate or decelerate based on opportunities that arise on a stock-by-stock basis. Volatility typically creates opportunities to put new cash to work at a faster clip, and a modest increase in volatility during the final week of May allowed us to put money to work more quickly than earlier in the month.

With earnings season behind us it was rather quiet on the news front. Costco reported a beat on the top and bottom line as the wholesale retailer continues to see strength in in-store traffic and growth in its e-commerce business. Irrespective of the macroeconomic backdrop, Costco continues to consistently demonstrate its ability to gain market share and expand its membership base. Elsewhere, Amphenol announced that its board of directors approved a two-for-one stock split while Johnson & Johnson announced the acquisition of Proteologix, a private biotech company dedicated to the discovery and development of therapeutics targeting autoimmune diseases, for $850 million in cash.

Source: Source of all data is FactSet, unless otherwise noted.

*The transition level activity taken by Tandem is applicable to new accounts and new money, not the composite or firm-wide level. New accounts and new money are not automatically invested on the first day. Rather, they are transitioned into our strategy over a longer time period that is dependent upon market conditions. Strategy level activity is applicable to the composite and action is taken at the firm-wide level.

Disclaimer: Tandem Investment Advisors, Inc. is an SEC registered investment advisor.

This audio/writing is for informational purposes only and shall not constitute or be considered financial, tax or investment advice, or an offer to sell, or a solicitation of an offer to buy any product, service, or security. Tandem Investment Advisors, Inc. does not represent that the securities, products, or services discussed in this writing are suitable for any particular investor. Indices are unmanaged and not available for direct investment. Please consult your financial advisor before making any investment decisions. Past performance is no guarantee of future results. All past portfolio purchases and sales are available upon request.

All performance figures, data points, charts and graphs contained in this report are derived from publicly available sources believed to be reliable. Tandem makes no representation as to the accuracy of these numbers, nor should they be construed as any representation of past or future performance.