Report Summary
Stocks
Rise +6.24%,
S&P +4.8%,
NASDAQ 100 +6.9%,
DJIA +2.6%
Real Estate
Rise: +1.17%
Fixed Income
Rise: +0.83%
In the US market, May was a good month for returns from both equities and fixed income markets as they recovered from April’s descent. While zooming into finer details of the month, we can see an array of events and factors that influenced market performance. On a much broader scale, two main factors influenced how the markets performed: macroeconomic data and corporate earnings.
From the macro point of view, investors’ outlook about inflation rate cuts supported by a series of weak economic data releases continued to fuel investors’ optimism, allowing them to hold on to their position on at least two to three rate cuts this summer. While April’s display of a much weaker-than-expected GDP report for Q1 and hotter-than-expected inflation (through CPI and PCE) stoked fears of “stagflation” and drove the stock market lower, May’s economic data has painted a more calming picture. The latest inflation release showed a modest slowing in headline and core categories, bringing year-over-year (YoY) rates down to 3.4% and 3.6%, respectively.
Also, a slight increase in April’s unemployment data, from 3.8% to 3.9% (which implies that unemployment rate has increased by 100 basis points), although marginal but above expectations of the rates staying the same, shows the economy and job market may be slowing down. Another key data release was big downside misses in April’s payroll data (released in May), where both change in nonfarm payrolls and change in private payrolls saw misses of 65k and 26k each (This means the number of jobs added are lower than what was expected or forecasted by economists and analysts.). The cumulative effect of these data reports on market sentiment has been an increase in expected interest rate cuts.
On corporate earnings, the stock market was fueled by several better-than-expected earnings reports from the big guns in the market. The S&P 500 (An index that covers top 500 companies in the US by market cap, and can represent the equities market in the US) has seen overall sales growth of +4.08% and earnings growth of +7.8% respectively. Both of these measures have beaten expectations by +1.02% and +8.27% respectively. The biggest absolute earnings growers on a sector level have been communications services (+40.94%), utilities (+30.50%), consumer discretionary (+27.80%), and technology (+24.39%). Real estate and financial services have also seen double digit earnings growth of +11.27% and +11.45% respectively.
Heading into the current earnings season, much of the spotlight was on the mega caps, with particular attention being paid to the group of stocks known as the Magnificent 7 (AAPL, GOOGL, TSLA, NVDA, AMZN, MSFT, and META). These companies from the technology, communications, and consumer discretionary sectors have collectively driven much of the return in the S&P 500 year-to-date (22% for the Mag 7 versus just 4% for those in the S&P 500 outside of the group). Out of the Mag 7, only Tesla failed to beat the market’s expectations, missing an already pessimistic outlook for the quarter. These better-than-expected earnings reports impressed investors, drove stock prices and major indexes up in the month of May.
In May, U.S. Treasury bonds mostly increased in value across different maturities. The yield, or interest rate, on the key 10-year Treasury bond dropped by 3.87%, bringing it down to 4.50%. The yield on the shorter-term 2-year Treasury bond fell by 3.23%, now at 4.87%. Notably, the difference between the 10-year and 2-year yields has stayed negative (an inverted yield curve) for nearly two years, indicating potential economic concerns.
Asset Classes Overview
Stocks:
For the month of May, the S&P 500 was up by +4.8%, NASDAQ 100 up by +6.9%, and Dow Jones Industrial Average (DJIA) up by +2.6% respectively. Our Rise stocks portfolio outperformed the market, closing the month up by +6.24%, buoyed by gains in tech, communications and consumer discretionary stocks in our portfolio.
Our stocks portfolio comprises carefully selected stocks across top performing industries and industries resistant to market changes, this has helped us outperform the market and hedge against losses in the event of market volatility or descent. During the course of the month, we added Block Inc (SQ) and Hims & Hers to our portfolio – Bloc Inc provides payment services to merchants, along with related services. The company also operates Cash App, while Hims & Hers Inc is a multi-specialty telehealth platform that connects consumers to licensed healthcare professionals, enabling them to access high-quality medical care for numerous health conditions. Based on our analysis both companies are fundamentally sound, with impressive growth and an attractive valuation.
Real Estate
Our Rise real estate portfolio returned +1.17%, in line with our expected returns, these returns are driven by the demand for our real estate properties. With high mortgage rates, limited housing inventory, and demand for rental properties, including AirBnBs – Real estate investment continues to appeal to us and we are always on the lookout to explore cheap rental properties in strategic locations.
Our pattern of consistent real estate returns is a testament to the approach we had taken in selecting our real estate assets and we are pleased with this consistency as we expect our real estate portfolio to keep providing attractive returns.
Fixed Income
Our fixed-income portfolio also performed well, generating a return of +0.83% as we have expected. Our steady and consistent returns underscores the effectiveness and reliability of our fixed-income strategy, providing passive income to our investors.
Throughout May, the U.S. bond market strengthened, closing in green and outperforming the equity market with positive returns. Yields remained relatively steady following the hawkish tone from the April FOMC meeting. Despite initial volatility, yields on the benchmark U.S. 10-year treasury ended the month at 4.68%. This stability in bond yields protected our Fixed-income plan from the larger market uncertainties and contributed to the overall positive performance of our fixed-income investments.
As always, Rise is committed to helping you achieve your financial goals through thorough analysis and careful selection of investment opportunities. So, stay invested or click here to begin investing.