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After an uneasy month, stock market returns were restrained: U.S. large-cap stocks (S&P 500) were up 0.4% for the month, while small-caps (S&P 600) were down 1.8%. Emerging-market stocks (MSCI Emerging Markets) lost 1.7% and developed-market international stocks (MSCI EAFE) were down 4.2%. By far the most positive corner of the stock market was the technology sector, thanks to the strong performance of NVIDIA and other AI-related stocks. A broad measure of bonds, the Bloomberg U.S.  Aggregate Bond Index, closed the month down 1.1%.

The major news in May wasn’t about the economy but about the tussle in Washington over raising the debt ceiling. Concern about the possibility, however slight, that the government could default on its debt made bond investors uneasy, unsettling parts of the bond market. On the last day of the month, however, the House passed legislation to suspend the debt ceiling, avoiding a potentially disastrous result.

However, the debt ceiling standoff wasn’t the only thing driving markets in May. The now-familiar questions persisted about where inflation is heading and whether there will be a recession. The pace of inflation continued to fall, with consumer prices up 4.9% in April compared to a year earlier. This was largely in line with what markets expected. Economic data has been mostly positive compared to what was anticipated. The job market continues to be strong, with the unemployment rate remaining very low and job creation strong. Similarly industrial output remains strong. Consumer optimism dipped during the month. The much-discussed recession hasn’t shown up, at least for now.

While overall market volatility was lower than it was during March’s regional banking events, the uncertainty kept markets tentative – and served as a reminder of how quickly things can change. In fact, on June 1 markets had already turned their attention to the new jobs and manufacturing data and ended the trading day on an upbeat note. As we’ve said before, of course past performance won’t guarantee future results, but markets react to surprises, both good and bad, so as always, we’ll be monitoring events as they unfold.

If you have any questions or concerns at all, contact your planner, who can discuss the most recent developments with you.