May 2023 Monthly Recap
Market Snapshot
*As of 05/31/2023
By the Numbers
  • The Federal Debt Ceiling, after sparking protracted default concerns, was suspended until January 1, 2025, after being signed into law by President Biden on June 3, 2023.
  • May’s jobs report revealed 339,000 new jobs for the month. The unemployment rate stands at 3.7%, with ten million job openings, or 1.7 jobs per unemployed person in the U.S.
  • Tech is leading the recent market rally, with the tech-heavy NASDAQ up 24% through May 31, 2023, including dividends. The S&P 500 is up 9.65% for the same period, while the 30-member Dow Industrials Average is up only 0.25%. Energy, the top performer in 2022, is down 9% in 2023.

Why stock market returns are strong despite investor concerns

Investors have grappled with market and economic challenges this year ranging from Fed uncertainty, stubbornly high inflation, the possibility of a recession, a banking crisis, the debt ceiling, ongoing geopolitical tensions, and more. And yet, the stock market has made significant year-to-date gains. This is further evidence that markets often defy expectations and can rebound when it’s least expected, especially when investors are overly focused on short-term events. What factors are driving these returns and how can investors focus instead on long-run trends?

Investor sentiment tends to swing from one extreme to the other. At the start of the year, many investors and economists were certain there would be a recession within months that would result in higher unemployment and Fed rate cuts. As we approach the second half of the year, no recession has yet materialized, and many economic trends have surprised to the upside. Headline inflation measures have improved although core inflation remains stubborn. Interest rates have stabilized with the 10-year Treasury yield hovering around 3.7%, partly due to a possible Fed pause at an upcoming meeting. These factors have helped tech stocks rebound, especially in areas related to artificial intelligence.

Despite the strong market gains this year, it’s unlikely that investors feel comfortable in the current environment. There is always something new to worry about, a concept often referred to as the “wall of worry.” The wall never shrinks – new building blocks are continually added as investor focus and media coverage shift to the next set of worries.

A focus on day-to-day headlines naturally leads investors to have a glass-half-empty view. Current events tend to dwell on unexpected negative events, rather than on the steadier, less noticeable progress that drives stock market returns over years and decades. Today, this short-termism reminds investors that major indices are still in the red when compared to last year’s all-time highs, and that many thorny market and economic issues are still unresolved.

This is why it’s often important to view the market with a broader perspective. The glass-half-full view, which is much more appropriate for long-term investors, is that many of these issues are slowly improving. As a result, the market has risen 21% from last year’s market bottom, and 71% since the beginning of 2019, despite all the intervening events.

Other issues that have been on investors’ minds have also been resolved, if only temporarily. The latest debt ceiling bill was signed into law after months of posturing and last-minute negotiations. While many of these same issues will re-emerge in the future during budget talks and again after the next presidential election, the worst-case scenario of a government debt default has been averted. Similarly, the banking crisis has stabilized after the failure and acquisition of First Republic Bank over a month ago. While the situation is ongoing, broad financial contagion has not occurred. These events have given investors some much-needed breathing room.

The economy continues to grow despite recession fears

Sources: Clearnomics, Bureau of Labor Statistics
© 2023 Clearnomics, Inc

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. Past performance is not a guarantee of future results.

The market indices discussed are unmanaged. Investors cannot directly invest in unmanaged indices.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The market index is unmanaged.

The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.