Stocks rebounded in May after a healthy pullback in April. We made it through another earnings season with most companies surpassing analyst estimates. 96% of S&P 500 companies have reported earnings for Q1 2024 (as of 5.30.24) and 78% have reported earnings above analyst estimates (Source: FactSet). Below are the May returns for the popular benchmarks that investors track (Data provided by Y-Charts & Commonwealth Financial Network):

• S&P 500 Index: +4.8%
• Dow Jones Industrial Average: +2.3%
• Nasdaq Composite Index: +6.9%
• Russell 2000 Index: +5%
• S&P Target Moderate Risk Index: +2.82%

In last month’s market update, we highlighted the fact that we were seeing “failed breakouts” in several areas of the market. We said, “We want to see these breakout levels reclaimed over the next few weeks to have confidence that the pullback is over.” Most of the major market indices reclaimed their Q1 breakout levels in May, which is a good sign for risk-on assets.

As we enter the summer months, inflation is still top of mind for most investors and in the summer of 2023 (June, July, and August), we saw extremely low core CPI (Consumer Price Index) readings. This means that unless inflation comes in very low, we may see a short-term spike in year-over-year inflation over the next few months. We do not believe that this is anything to panic about; however, the financial news media will probably be making a big deal out of it. We will continue to ignore the noise and follow our plan. These potential higher inflation numbers could coincide with seasonal weakness that we see during election years in September and October.

We believe that the path of least resistance for stocks is higher between now and the end of the year. Below are a couple charts from our friend Ryan Detrick at Carson Investment Research that add to our bullish thesis.

Our game plan has not changed. We expect weakness in stocks two months before the election, but overall, we believe that 2024 will finish well in the green.