May Market Commentary
- Marc Lowe
- Jun 1
- 5 min read
The stock market and the economy aren't telling the same story right now... and that's common. The stock market and the economy are not the same thing. The stock market is forward-looking and moves ahead of where the economy currently is. That is why, in my view, the stock market is a leading indicator of the economy.
It's important to keep in mind that the economic numbers like jobs and inflation are all backward-looking, telling us what happened the past month. Stock prices move on where investors believe things are going. The beautiful stock market is pricing in what is likely going to happen here in the next 3-30 months, and yes, it is contrary to what is catching everyone's attention right now, which is inflation and oil prices.
Let's get into the data:
Non-farm payrolls for April rose by 115,000. The U.S. Bureau of Labor Statistics reported that the labor market rose by almost double the 62,000 jobs of the Dow Jones consensus estimate. This marks two months of job gains, breaking the see-saw trend of gains and losses.
Inflation on the rise. The Bureau of Labor Statistics reported that the Consumer Price Index for April grew 3.8% from twelve months ago, the highest level we’ve seen since 2023. The month-over-month number was 0.6%, moderating a little from last month at 0.9%.
Consumers are still spending. The latest CNBC/NRF Retail Monitor, released by the National Retail Federation, showed that retail sales rose for the seventh straight month in April, coming in at 5.73% year over year.
GDP expectations bounce back. The latest GDPNow estimate from the Atlanta Fed is for growth of 3.7% in Q2.
On one hand, the S&P 500 continues to push toward new highs, supported by strong corporate earnings. On the other hand, inflation has begun rising again, interest rate expectations have shifted dramatically, and consumers are increasingly relying on savings to maintain spending levels.
Adding another layer of uncertainty, a new Federal Reserve Chairman is preparing to take the reins at a time when policymakers are facing difficult decisions.
So what should investors be paying attention to?
The Economy Is Still Growing
Despite widespread concerns, recent economic data remains surprisingly resilient.
The labor market added 115,000 jobs in April, marking the second consecutive month of positive job growth. Consumer spending continues to rise, with retail sales posting their seventh straight month of gains. Meanwhile, GDP forecasts have improved, with expectations for stronger economic growth during the second quarter.
On the surface, these are encouraging signs.
Consumers are still spending money, businesses are hiring, and the economy continues to expand.
The challenge is that the underlying details tell a more complicated story.
Consumers Are Feeling the Pressure
While spending remains strong, many households are funding that spending by dipping into savings.
The personal savings rate recently fell to its lowest level since 2022, suggesting that higher prices are beginning to put pressure on household budgets. Rising fuel costs, ongoing geopolitical tensions, and higher everyday expenses are making it more difficult for many families to maintain the same standard of living.
Business leaders are increasingly warning that inflation could eventually change consumer behavior, particularly among lower- and middle-income households.
When necessities become more expensive, discretionary spending is often the first thing to be cut.
Jobs Are Stable, But Wages Aren't Keeping Up
One of the most important trends investors should watch is the relationship between wages and inflation.
The labor market appears to be stabilizing, which is encouraging. However, inflation is rising faster than wage growth. That means many workers are effectively losing purchasing power even if their paychecks are getting larger.
The chart above highlights the recent improvement in employment data.
This chart tells the other side of the story. While workers continue to earn more, those gains are being offset by rising costs across the economy.
This gap between wages and inflation is one reason consumer confidence remains surprisingly weak despite a relatively healthy labor market.
What Will the Federal Reserve Do Next?
The Federal Reserve spent the past several years fighting inflation after initially underestimating how persistent post-pandemic price increases would become.
Now policymakers find themselves facing a familiar challenge.
Inflation has accelerated again, driven in part by higher energy prices and ongoing geopolitical uncertainty. Yet economic growth remains positive and unemployment remains relatively low.
Markets have dramatically adjusted expectations for interest rates. Earlier this year, investors anticipated multiple rate cuts. Today, many analysts believe rates could remain elevated much longer than expected.
All eyes will now be on incoming Federal Reserve Chairman Kevin Warsh and his first Federal Open Market Committee meeting. While few expect an immediate rate change, investors will be paying close attention to how the new Chairman communicates the Fed's priorities and outlook.
What Investors Should Focus On
Periods like this can be uncomfortable because the headlines often send mixed messages.
Markets are strong, but inflation is rising. Economic growth remains positive, but consumers are feeling pressure. Interest rates are stable for now, but uncertainty remains high.
Rather than reacting to every headline, investors should focus on the fundamentals:
Maintain a clear long-term investment strategy.
Stay patient & disciplined.
Pay attention to cash flow and spending habits.
Ensure your financial plan can withstand periods of inflation and volatility.
Successful investing isn't about predicting every move by the Federal Reserve. It's about building a plan that can adapt regardless of what happens next.
As we move through the summer months, staying focused on the factors you can control will likely matter far more than trying to predict the next market headline.
About the Author
Marc Lowe, CFP® is a fee-only fiduciary advisor based in Waterford, CT, helping small business owners & families make smarter financial decisions.
The information presented in this article is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through In The Money Retirement, an investment adviser registered with the state of Connecticut. The information linked to on third-party sites is being provided strictly as a courtesy and convenience. We make no representation as to the completeness or accuracy of information provided at these websites. When you access these websites, you are leaving our website and assume any and all responsibility and risk for use of the web sites you are visiting.The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original.
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