After a weak April, May showed a clear recovery. In the first half of the month, the major American indices managed to reach new all-time highs, even with the slightly weaker end of the month, but still showing great strength, especially after corporate earnings and positive inflation news. With all this, the SPX managed to maintain the 5200-point support level.
Before starting the macro review, here are some seasonal notes for the future:
- Since 1950, there have been 21 episodes where the S&P 500 rose more than 10% by the end of May.
- Of these, the only two occasions where the S&P 500 fell for the rest of the year were in 1987 (-13%) and 1986 (-0.1%), meaning the S&P 500 rose ~90% of the time.
- The median performance for the last 7 months of the year (June 1 to December 31) since 1950 is 5.4%. During these 21 episodes, the median 7-month performance increases to 8.1%.
- The Nasdaq has risen in 16 consecutive Julys with an average return of ~4.64%.
On Wall Street
Taking a macro view of Wall Street, April’s data pointed to stagflation, with all the media using this word in their reports. However, in May, inflation data stopped surprising to the upside; although it is still not near the target, we could say it did not trigger alarms as it did in April.
Commentary on inflation
The inflation data released in May (April data), were very much in line with expectations: the overall index increased by 0.31% MoM, below the expected 0.37%, leaving the annual figure at 3.36%. This YoY figure has fluctuated between 3% and 3.7% since June, so we could say it has stabilized in a range well above the target.
The core data was 0.29%, slightly below the expectations of 0.30%. The annual rate stood at 3.62%, the lowest rate since April 2021.

As in previous months, much of this increase was due to gasoline prices (which rose 2.8% month-on-month) and the housing index, which increased by 5.5% over the past year (+0.4% month-on-month). Combined, these two indices contributed to more than 70% of the monthly CPI increase.
Perhaps the most concerning segment of inflation, beyond the volatility in energy and the sticky rental inflation, continues to be services, which remain stagnant around +5.3% year-on-year.
Reviewing the core personal consumption expenditures (PCE) price index, which is a more significant measure for gauging real inflation trends, it increased by 0.25% in April, leaving the annual figure at 2.75%, the lowest in three years (since April 2021).
As was the case last month, the services sector led the month-on-month and year-on-year acceleration of both the overall and core PCE. Looking more closely, the SuperCore PCE (services inflation excluding shelter) had a smaller increase than in March, led by the first decline in transportation services in 2024. Although the risks of an inflation resurgence similar to the catastrophic images of the 1980s are minimal, there is a high risk of inflation stabilizing above the 2% target, or even higher.
Commentary on Economic Growth
In May, the second reading of the GDP for the first quarter was released, and it was lower than the first. The U.S. economy grew by 1.3% in the first quarter of the year, below the expected growth of 1.6% from the first reading, showing a clear slowdown from the 4.9% and 3.4% seen in previous quarters.
Looking at the data, it is evident that personal consumption continues to be the pillar supporting economic growth, but it slowed down to add only 1.34% (more than 100% of the figure) from the 1.68% of the first reading and the 2.2% of the previous quarter. The
key to the weak figure was found in net trade, which, after contributing 0.25% to the GDP in the fourth quarter, subtracted 0.89% from the real figure in the first quarter.
An important and more up-to-date point on what happened in May will be revealed next week with the ISM data. The latest data showed clear slowdowns.
Commentary on Employment
Unlike other central banks, the Federal Reserve has two mandates: price stability (the sole mandate for other central banks) and full employment.
Looking at the latest employment data available, corresponding to April (the May data will be released this week), the figures show strong but clearly weakening trends and even fall below estimates.
An indicator to observe employment trends is the weekly unemployment data, which saw significant movements in May. For two consecutive weeks, they marked the highest levels of the year.

This could be a warning for the employment data we will see this week. And it raises a serious question: Given that inflation data has not eased and has clearly stabilized above targets, will the first rate cut come due to the employment mandate?
In Europe
In the Eurozone region, markets are preparing for the first rate cut next week, or at least that’s what all ECB members are mentioning. However, considering their sole mandate of price stability, they seem far from achieving the 2% target.
The annual inflation rate showed steady growth of 2.6% in May, higher than market expectations. The core inflation rate, which excludes the volatility of food and energy prices, stood at 2.9%, exceeding the estimates of 2.8%.
Taking into account the base effect and that these growths are compared with figures around 5% for both the overall and core rates, everything indicates that the rate will stabilise above 3% for the second half of the year.

Regarding GDP, the second reading showed that the Eurozone economy grew by 0.3% in the first quarter of 2024, marking the highest growth rate since the third quarter of 2022 and matching the figure from the first reading.
Extra
Despite the positive inflation data for the Federal Reserve’s interests, tensions have remained in the bond market. U.S. 10-year bond yields closed at 4.50%, lower than the April close but clearly showing a lack of confidence for the first rate cut.
However, it is also worth mentioning that the fixed-income market is highly interconnected globally, and despite the good news from the U.S., the Eurozone’s 10-year German bond yields are at November highs, surpassing 2.65%, especially after the latest inflation data… Strange for a market that is pricing in a first rate cut, right?
A special mention within the macroeconomic landscape should be given to Japan:
Its 10-year bond yield exceeded 1% during May (for the first time in 12 years), pricing in potential new rate hikes. This also affects and weighs down bonds in other regions.
A brief comment on currencies:
After four consecutive months of gains, the dollar corrected. Against the euro, it lost 1.71%, after four months of growing speculation about the possibility of the ECB cutting rates in June, ahead of the Fed. One week away from this, despite continuous comments from ECB officials, it is not seen as the best option. Lowering rates before the Fed, with inflation still not stabilized, could trigger unintended consequences… Everything is traded in dollars.
Despite the dollar’s weakness and to no one’s surprise… the JPY only managed to strengthen by 0.35% throughout the month, even considering the record interventions:
Japan’s Ministry of Finance confirms that there were interventions to prop up the yen between April 26 and May 29.
The total amount spent was 9.8 trillion yen (or, to be more precise, 9,788.5 billion yen).
This is the largest single-month intervention by Japanese authorities in the foreign exchange markets on record.

Authors: Diego Puertas ( The Market Eye) & MORAM Capital