Key Points

  • May has generally been good for U.S. stocks, although the major indexes still remain within recent ranges. We believe the bull market will continue, but the increased volatility seen earlier this year is likely to reemerge.

  • U.S. economic data has shown signs of rebounding from its first quarter weakness; and while the expansion is extended in terms of time, it’s less extended in terms of “temperature” (not over-heating).

  • Recent economic signals from international markets are less encouraging, but remain supportive of likely modest international stock market gains.

“A hero is someone who has given his or her life to something bigger than oneself.”
- Joseph Campbell

Summertime cheer?

Happy Memorial Day Weekend everyone. A relatively strong May for stocks may have investors wondering if they should shun the traditional “Sell in May and go away” mantra. Trying to time the market is rarely a winning strategy and we never advocate trying to catch a potential seasonal downturn. It’s also a midterm election year, and those have historically been accompanied by larger market swings and greater maximum drawdowns; not to mention the ongoing geopolitical uncertainties. Case in point would be the announcements by President Trump that the summit with North Korea has been cancelled and possible tariffs on imported cars and trucks being considered. In addition, the summer is vacation season, with overseas investors taking extended ones, which can lend itself to lower volumes and the potential for more pronounced swings.

The rally since the March lows has pushed investor sentiment higher, with the Ned Davis Research Crowd Sentiment Poll moving back into optimistic territory, a potential contrarian indicator. In addition, corporate earnings season has wound down, eliminating a tailwind of good news associated with tax and regulatory reform.

Economic expansion not on oxygen yet!

According to the National Bureau of Economic Research (NBER), the current economic expansion is now 106 months old—making it the second longest expansion in the past 100 years—and well above the average of 58 months—leading to much “latter innings” discussions But remember, expansions don’t die of old age alone—they typically die from excess; in the form of inflation, monetary policy, capacity utilization, etc. So, while the length of the current expansion is extended, economic gains haven’t been. According to Yardeni Research, real gross domestic product (GDP) has grown about 22% from the 2009 trough, well below the 50%-plus gain at the high end; and the second-lowest gain in any expansion since 1960.

After the typically-weaker first quarter growth rate for the economy, we’ve seen a pickup in the data for the second quarter. Regional manufacturing surveys such as the Empire and Philadelphia Fed surged in May, with the former moving from 15.8 to 20.1, while the latter spiked from 23.2 to 34.4. Additionally, retail sales staged a bit of a comeback, with the Census Bureau reporting that April sales rose 4.7% over the year ago period, with the previous two months being revised higher.

Retail sales looking good