CWG Investment Committee: Much Ado About Nothing

As the title suggests, the stock market’s movement through the end of May tells a calmer story than the headlines. Major indexes were roughly flat after the first five months with the S&P 500 at a 0.5% gain, the Nasdaq down 1.0%, and the Dow declining 0.6%.

Despite April’s sharp drawdown — driven in part by tariff fears around “Liberation Day” — markets rebounded in May. The S&P 500 and Nasdaq had their best month since November 2023, according to the Wall Street Journal.

Shakespeare had it right. Panic does not pay dividends.

U.S. Stock Indexes May Returns:

The market has taken investors on a wild ride this year:

• January start: S&P 500 opened the year near 5,900
• February 19: Index hit an all-time high above 6,100
• April 7: Tariff headlines sparked a sharp selloff — S&P dropped 20% below 4,900
• May 31: Market recovers losses, closing back above 5,900

In the meantime, Q1 earnings grew 12.9% year-over-year. The Fed remained on hold. The U.S. dollar weakened. Long-dated Treasury bonds sold off. Ten-year yields touched 4.41%. Thirty-year yields moved above 5%.

Foreign equities outperformed U.S. markets for the first time in years, helped by the weaker dollar. Gold remains elevated as foreign central bank buying continues its steady pace.

Markets pushed back against the new wave of tariffs, which reintroduced uncertainty into supply chains and pricing. While the trade deficit remains historically wide, investors continue to favor global openness over friction.

Ironically, the economy held up well. Consumers, expecting higher prices, pulled forward spending. Retail sales surprised to the upside in both March and April.

Technology stocks led the rebound in May. Investors returned to growth as rate fears eased and earnings came in strong. 

But there are reasons for caution as we head into the summer months:

1. Foreign holders of U.S. debt may reduce purchases. The Treasury plans to issue over $8 trillion in the coming year.
2. Fiscal deficits remain large and structural, with further expansion likely under current tax proposals still under debate in Congress.
3. Even a base tariff rate of 10% introduces friction — slowing trade and adding pressure to both domestic and global growth.
4. Geopolitical tensions persist. Russia remains entrenched in Ukraine.
5. China continues to distance itself economically from the U.S., creating uncertainty for multinationals — from Apple and Walmart to Boeing.

In sum, we have a wall of worry for the market to climb, which it has done so well over the past 16 years since the Great Financial Crisis in 2009. Valuations are elevated relative to five and ten year averages. Bond yields, here and abroad, now offer real competition for capital.