The Markets (as of market close May 31, 2022)
May was a volatile month for Wall Street. Stocks began May where April ended, with losses. In fact, it wasn't until the last week of May that stocks posted gains. Throughout the month, investors had to face the prospects of an economic slowdown impacted by accelerating inflation, rising interest rates, the ongoing war in Ukraine, and lukewarm corporate earnings reports. Despite suggestions from Federal Reserve Chair Jerome Powell that the central bank is not likely to raise interest rates by 75 basis points, stubbornly high inflation has set the Fed on a path of quantitative tightening and interest-rate advances that presents a risk to economic growth.
Crude oil prices gradually rose throughout the month, only to surge on the last day of May after the European Union imposed an immediate ban on two-thirds of all Russian oil imports in a further response to its invasion of Ukraine. Crude oil prices advanced over 10.0% to nearly $115.00 per barrel. Gas prices also continued to increase in May, reaching record highs along the way. The national average retail price for regular gasoline was $4.59 per gallon on May 23, up from $4.12 on April 25 and $1.57 over a year ago. Analysts suggest that gas prices are likely to continue to increase with rising crude oil prices, the impact of the ongoing Russia/Ukraine war, and demand exceeding refinery output.
First-quarter gross domestic product contracted at an annualized rate of 1.5% (see below) after increasing nearly 7.0% to end 2021. Nevertheless, there were some positive signs in May. Consumer spending continued to increase and some high-end retail earnings reports gave investors a reason to believe the economy could weather the storm.
A late-month rally helped push some of the benchmark indexes higher to close May in the black. The Dow, the S&P 500, the Russell 2000, and the Global Dow each finished ahead of their respective April closing values. While tech shares rebounded somewhat at the end of the month, the Nasdaq still closed May in the red.
Ten-year Treasury yields ended the month about where they began. Gold prices decreased nearly 3.0% in May. The U.S. dollar road the ebbs and flows of the stock market and bond prices, ultimately ending the month lower than it started.
Eye on the Month Ahead
The Federal Open Market Committee meets in June and will almost certainly increase the federal funds target interest rate another 50 basis points, following a similar measure the last time the Committee met in May. Several economic indicators in April began to show that the economy may be slowing. The May data, available in June, will likely continue this trend.