CWG Investment Committee: April Showers Bring May Flowers

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May was another strong month for stocks, seeing the S&P 500, Nasdaq, and Dow all notch new all-time highs. The S&P 500 has been up six of the last seven months.
The S&P 500 closed at 5,277.5 on the last day of May, up 10.6% for the year. The Nasdaq is up 11.5% over the same period. The DJIA climbed 2.6%, Russell 2000 increased 2.1%. The Bloomberg US Aggregate Bond Index was down 2.0% for the year. Gold was up 12.6%.
All this after 22 months of tightening by the Fed who appears to be waiting for more signs of slowing data to begin a rate-cutting cycle. Core PCE price index is running 2.8% year-over-year as of April. Europe appears on the verge of a rate cut as their economy moves into a slightly positive zone.
We are seeing earnings improve but concentrated in growth names that are becoming a larger percent of the S&P 500 capital weighted index. Nvidia is the belle of the ball reaching a $2.7 trillion market cap, exceeding all but Apple and Microsoft and also the entire market capitalization of German stocks.
The ongoing bull market has pushed valuations and sentiment gauges to heighted levels. The price/ earnings ratio of the S&P 500 currently nears 21x (5 yr avg = 19.2x, 10 yr avg = 17.8x). The Investors Intelligence Sentiment Index exceeds 60% Bulls, a rare reading that appears around peak prices. US Stock short interest is hovering near a two decade low according to Bloomberg.
With a contentious election upon us in six months, we should not be surprised to see some rocky market action this summer. We are still anticipating good results for this year; election years are overall positive ones.
Depending on which party prevails in November, tax rates will be a big topic in 2025 along with how to slow down a growing $1 trillion fiscal deficit increase every 100 days.