May Ends with Bonds Up, Stocks Down 

May 31, 2024

Here are the economic and market highlights for the week: 

  • The PCE Index, the Fed’s favorite inflation gauge, rose 0.30% in April. Year-over-year, the index was up 2.70%. Fed officials closely follow the gauge because it accounts for changes in consumer behavior such as when consumers substitute less expensive items for costlier alternatives. The index also has a wider scope than the CPI. Excluding food and energy costs, the PCE index rose 0.20% and 2.80% from the year ago period. Goods prices rose 0.20%, while services increased 0.30% as consumers moved back to favoring services/experiences over goods. Meanwhile, personal income increased 0.30% on the month while spending rose 0.20%. The inflation figures were in line with expectations.

  • Pending home sales fell to their lowest level in four years as 7.00% mortgage rates benched prospective homebuyers. Sales fell -7.70% in April from the previous month, well off the -0.40% decline expected by analysts. Pending home sales are a good indicator of the direction of sales of existing homes in subsequent months. The drop suggests it could be a slow homebuying season as elevated interest rates and home prices squeeze household budgets.

May Ends with Bonds Up, Stocks Down

Markets closed the last trading week of May on a mixed note with bonds rallying and stocks easing from record highs. The U.S. 10-year Treasury yield closed the month at 4.50% as yields rallied during the Memorial holiday shortened trading week on hawkish tones from the Fed and on soft investor demand during this week’s Treasury auction. Stocks also took a break from their record setting run this week after weaker than expected corporate earnings from cloud software vendor, Salesforce, were construed as being a negative proxy for the broader tech earnings picture. Even after this week’s slide, the tech sector still managed to post a 7.00% rise in May. Overall, it was a good month for investors with the S&P 500 rising 5.16%, bringing its total year-to-date gain to 11.30%.

Looking ahead to June, headwinds – primarily rates – are likely to challenge the market’s upside until the Fed signals it is finally ready to cut rates. That shift in sentiment is unlikely to occur until September. Inflation remains the primary influence on the Fed, and while both headline and core PCE have dropped below 3%, it has remained rangebound and elevated for the last five months relative to the Fed’s 2% target. There are some positive signs that some of the economic precursors for inflation may be easing, however. Housing, durable goods sales and personal consumption– all of which are influenced by interest rates – have cooled or are cooling. Waning demand could remove the pressure on prices, but the Fed will almost certainly prioritize snuffing out inflation before concerning itself with cutting rates to shore up consumption. Factoring into the lackluster expectations for the market for the month ahead is the fact that June has historically been a weak month for investor returns. Since 1950, the S&P 500 has increased an average of just 0.10% in June, putting it in the bottom quartile of all the months. With little expected to change in the Fed picture and seasonal patterns in play, June’s market action is likely to be subdued.

The Week Ahead

Next week, we will take a look at the following data: 

  • Nonfarm Payrolls
  • ISM Manufacturing and Services


Financial Advice for New College Graduates and Young Adults

Below are some tips to help recent graduates and young adults establish a strong financial foundation that can have a positive impact for years to come. 

Start an emergency fund.

An emergency fund will come in handy for unexpected bills, such as a car repair or medical emergency. New graduates might consider saving money received as graduation gifts or setting aside a small amount from each paycheck. Personal finance experts recommend individuals work on accruing three to six months’ worth of living expenses.

Understand compound interest and how it can work for you and against you.

Compound interest is interest that applies not only to the initial principal of an investment or a loan, but also to the accumulated interest from previous periods. In other words, compound interest involves earning, or owing, interest on your interest. The power of compounding helps a sum of money grow faster than if just simple interest were calculated. For savings and investments, compound interest multiplies your money at an accelerated rate.

For loans and credit card debt, compound interest works against you. According to LendingTree, the average credit card interest rate in America today is 24.66%, and that rate has risen for 24 out of the last 26 months. An individual who carries a $2,000 balance on their credit card with a 20% interest rate and only pays the minimum monthly payment for 15 years would end up paying interest charges of around $2,241.  

Start saving for retirement

The earlier you start saving, the better. Through compound interest, individuals have the potential to earn much more by investing over a longer period of time than if they started investing later but with more money. For example, an investment of $500 earning 5% the first year would accrue $25 in interest. The next year with no additional contributions and with a 5% return, the amount would be $551.25 at the end of year two.  

Set up sinking funds

Sinking funds are a method of saving that can help individuals prepare for infrequent expenses. With this method, individuals set aside money each month for specific savings goals. Setting up automatic monthly transfers from your primary checking account into sinking funds can help you stay on track to meeting your goals. A sinking fund can be any financial goal or expense that may occur irregularly such as a downpayment for a home, money for a vacation, funds set aside for car repairs, or money for holiday gifts. A sinking fund is different than an emergency fund because it is an expense you can expect, such as car insurance, home maintenance, or a wedding. 

Build your credit score

A good credit score can help individuals qualify for more competitive rates on certain types of insurance and help with getting approved for mortgages and securing a more favorable interest rate. A credit score is based on several factors, such as your bill paying history, the amount of unpaid debt you have, how long you have had credit, how much credit you are utilizing, and other components of your financial life.  

If you have student loans, develop a repayment plan

Depending on the type of loan you have, there may be a grace period of six to nine months before you need to start making payments, although interest will likely still accrue during this time. It’s a good time to check in with your loan servicer and update your contact information if you’ve moved since graduation. If you haven’t found a job yet, you may need to request a deferment from your loan company if you are not ready to begin making payments.  The financial advice for new graduates is to develop a strategy to start repaying loans as soon as possible by determining what you owe, how much your loan payment will be, and how it will fit into your monthly budget.

Young adults just starting out will face a lot of major financial decisions rather quickly, and making informed and wise ones can establish a solid financial foundation.

















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