Breaking News
Get 40% Off 0
Is NVDA a 🟢 buy or 🔴 sell? Unlock Now

5 Reasons Why May Will Be a Month to Remember

By Investing.com (Jesse Cohen)Market OverviewApr 28, 2023 01:59PM ET
www.investing.com/analysis/5-reasons-why-may-will-be-a-month-to-remember-200637630
5 Reasons Why May Will Be a Month to Remember
By Investing.com (Jesse Cohen)   |  Apr 28, 2023 01:59PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
AMD
+1.13%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
RIVN
+4.11%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
HOOD
+4.23%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
COIN
+2.72%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
RBLX
-1.11%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
ABNB
+1.87%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • May is expected to be another volatile month on Wall Street.
  • Investor focus will be on the Federal Reserve’s policy meeting, the monthly jobs report, inflation data, more earnings, and the U.S. debt ceiling.
  • Investors should brace for more violent swings and sharp moves in the month ahead.

Stocks on Wall Street are on pace to end April on a decidedly volatile note as investors grow increasingly worried over the impact of high interest rates, inflation, and a potential U.S. recession.

Dow Vs. S&P 500 Vs. Nasdaq
Dow Vs. S&P 500 Vs. Nasdaq

The blue-chip Dow Jones Industrials Average is on track to come out on top in April, with a roughly 1.7% gain heading into the final trading session of the month. The benchmark S&P 500 index is about 0.6% higher this month.

Meanwhile, the tech-heavy Nasdaq Composite is set to be the biggest laggard in April, down 0.65% as of Thursday’s close.

As a wobbly April comes to an end, investors should prepare themselves for fresh turmoil in May. This month kicks off a historically weak period in which the stock market tends to underperform in the six months from May to October.

S&P 500: Average Returns by Month
S&P 500: Average Returns by Month

Since 1990, the S&P 500 has gained an average of about 2% from May through October. That compares with a roughly 7% average gain from November through April.

Some have dubbed this seasonal divergence “Sell in May and Go Away."

With investors continuing to gauge the outlook for interest rates, inflation, and the economy, a lot will be on the line in the month ahead.

1. Wednesday, May 3: Fed Rate Hike, Powell Speech

The Federal Reserve is almost certain to follow through with its tenth consecutive rate hike at the conclusion of its two-day policy meeting on Wednesday, May 3.

As of Friday morning, financial markets are pricing in an 89.5% chance of a 25-basis point rate increase and a 10.5% chance of no action, according to Investing.com’s Fed Rate Monitor Tool.

Fed Rate Monitor Tool
Fed Rate Monitor Tool

If the Fed does, in fact, deliver a quarter-percentage-point rate hike next week, it will put the benchmark Fed funds target range in a range between 5.00% and 5.25% that policymakers previously projected would likely be the peak for the current round of policy tightening.

Beyond the expected rate move, Fed Chair Jerome Powell will hold what will be a closely watched press conference shortly after the release of the Fed's statement.

Powell will have to send some signal about what happens next - whether to keep the language from the March policy statement that "some additional policy firming may be appropriate" or point to a pause.

Investors are currently betting that next week’s rate hike will be the last one in the Fed’s current tightening cycle. Traders have also priced in at least one 25bps rate cut by the end of 2023 amid mounting fears over a looming economic downturn.

Prediction:

  • It is my belief that the Fed will continue to raise interest rates in response to recent data showing inflation remains persistent. At the same time, the broader economy seems poised to continue growing, even if slowly.
  • While I agree that the current tightening cycle may be close to the finish line, I reckon the policy rate will need to rise another half of a percentage point to between 5.50% and 5.75% before the Fed entertains any idea of a pause or pivot in its battle to restore price stability.
  • The U.S. central bank is at risk of committing a major policy error if it starts to ease policy too soon, which could see inflationary pressures begin to reaccelerate.
  • I expect Powell will reiterate his determination to bring down sticky inflation while stressing the point that the Fed will be responsive to incoming data through the summer and into the fall as it considers the direction of its next policy decision.
  • One thing is for certain: given how inflation and the economy are behaving, the fewer promises Powell and the Fed make, the better.

2. Friday, May 5: U.S. Jobs Report

The first big piece of data to come out after the Fed’s policy meeting will be the U.S. jobs report, and it will likely be key in determining the U.S. central bank’s next move.

The Labor Department will release the highly anticipated April nonfarm payrolls report on Friday, May 5, at 8:30 AM ET. Forecasts center around a continued solid pace of hiring, even if the increase is smaller than in previous months.

US Jobs Report
US Jobs Report

The consensus estimate is that the data will show the U.S. economy added 181,000 positions, according to Investing.com, slowing from jobs growth of 236,000 in March.

The unemployment rate is seen edging up by one tick to 3.6%, staying close to a recent 53-year low of 3.4%.

Officials have signaled that the unemployment rate needs to be at least 4.0% to slow inflation, while some economists say the jobless rate would need to be even higher.

Either way, low unemployment - combined with healthy job gains - points to more rate hikes to come in the months ahead.

Prediction:

  • I believe the April jobs report will underscore the remarkable resilience of the labor market and support the view that more rate hikes will be needed to cool the economy.

3. Wednesday, May 10: U.S. CPI Data

The April CPI inflation report looms large on Wednesday, May 10, and analysts expect it could be hotter than March’s 5.0% year-over-year pace, suggesting that the Fed will maintain its fight against inflation.

US CPI Report
US CPI Report

As per Investing.com, the consumer price index is forecast to rise 0.2% on the month after edging up 0.1% in March. The headline annual inflation rate is seen rising 5.2%, compared to a 5.0% annual pace in the previous month.

U.S. CPI peaked at 9.1% in July and has been on a steady downtrend since, however, inflation is still well above what the Fed would consider consistent with its 2% target range.

Meanwhile, the core CPI index is expected to rise 0.4% on the month and 5.6% from a year ago. The core figure is closely watched by Fed officials who believe that it provides a more accurate assessment of the future direction of inflation.

Prediction:

  • Overall, while the trend is lower, the data will likely reveal that neither CPI nor core CPI is falling fast enough for the Fed to slow its inflation-fighting efforts this year.

Rates Vs. Inflation
Rates Vs. Inflation

Taking that into account, I believe the Fed is likely to hike rates again in June and July as long as inflation remains at elevated levels and the labor market stays resilient.

4. Earnings Season Continues

Investors await a flood of earnings in May as Wall Street’s first quarter reporting season continues.

Apple (NASDAQ:AAPL) will be the last ‘FAAMG’ stock to report quarterly results when it releases fiscal second-quarter earnings after the market closes on Thursday, May 4.

Other notable companies joining AAPL in reporting earnings next week include Advanced Micro Devices (NASDAQ:AMD), Qualcomm (NASDAQ:QCOM), Coinbase (NASDAQ:COIN), Block (NYSE:SQ), Shopify (NYSE:SHOP), Uber (NYSE:UBER), Ford Motor Company (NYSE:F), Starbucks (NASDAQ:SBUX), Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA), and DraftKings (NASDAQ:DKNG).

The following week sees high-profile names like Walt Disney (NYSE:DIS), PayPal (NASDAQ:PYPL), Robinhood (NASDAQ:HOOD), Airbnb (NASDAQ:ABNB), Palantir Technologies (NYSE:PLTR), Roblox (NYSE:RBLX), Lucid Group (NASDAQ:LCID), Rivian Automotive (NASDAQ:RIVN), Occidental Petroleum (NYSE:OXY), and Beyond Meat (NASDAQ:BYND), report earnings.

Retailers then take center stage in the last full trading week of the month when heavyweights Walmart (NYSE:WMT), Target (NYSE:TGT), Home Depot (NYSE:HD), Lowe’s, TJX Companies (NYSE:TJX), and Costco (NASDAQ:COST) deliver their latest financial results.

Another key name to watch will be Nvidia (NASDAQ:NVDA), whose Q1 results are scheduled to come out after the closing bell on Wednesday, May 24.

Expectations for Q1 earnings have drastically improved, with analysts now projecting a 2.4% year-over-year drop for profits at S&P 500 companies compared to a 5.1% decline forecast at the start of the earnings season, according to FactSet.

Of the 235 S&P 500 companies that have reported earnings through Thursday, about 79% have reported positive surprises, according to FactSet data. In a typical quarter, 66% of S&P 500 companies beat estimates.

5. Debt Ceiling Drama

Fresh uncertainty on the political front may also shape how Fed officials weigh the risks facing the U.S. economy and whether they decide to pause further rate increases.

The U.S. Treasury Department could run out of ways to pay its bills in a matter of weeks if Congress fails to pass a bill to raise the government's $31.4 trillion debt ceiling, raising the risk of a historic U.S. debt default.

Lawmakers do not know precisely how much time they have left to act, but the "x-date" could come as early as the first week of June.

Republican House Speaker Kevin McCarthy has called on President Joe Biden to begin negotiations on raising the debt ceiling and spending-cut bill, even as the White House and congressional Democrats insist on a debt limit increase with no strings attached.

For Fed officials, the political standoff could influence their view of whether the economy and inflation are likely to slow more - perhaps much more - quickly than anticipated.

If that were the case, then the market would be forced to reprice rate expectations to reflect additional easing by the end of the year.

Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.

5 Reasons Why May Will Be a Month to Remember
 

Related Articles

5 Reasons Why May Will Be a Month to Remember

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (9)
Ekrem Kılıç
Ekrem Kılıç Apr 30, 2023 7:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Isn't it contradicting that you are long in SP500 and NASDAQ indexes but you expect the rates to hit 5.5, even 5.75 where the market expects a pause or even a rate cut in July?
ZABRON ERNEST
PipsMaker2023 Apr 30, 2023 5:48AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Very good article and looking forward to seeing waterfalls in EURUSD
FMGK Blue
FMGK Blue Apr 30, 2023 3:11AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
once again, useless article with no real data analysis.
Trumpster Rocks
Trumpster Rocks Apr 30, 2023 1:15AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Market way Over Bought especially this last week of Ultra Nonsense
علی اصغر میرزایی
علی اصغر میرزایی Apr 29, 2023 6:34PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Did YOU see the crash coming from a Pandemic? Anyone that did NOT has no ability to use Common Sense and unbiased assumptions.  The Fed Funds at 4.5% has caused a trillion plus dollar debacle. predictable and I posted about the possibility not 2 weeks before it happened.  40 years of disinflation with no sign we are getting back to it. China alone will make sure commodity prices stay high as their 3 year lockdown is over.  To declare great earnings at a negative 2.5% says it all.  We already had the major push from a post pandemic. Already ready have historic job creation. how in the world will we improve on that? Peak, a generational PEAK! 2023 will go down as a 40/50% drop before year is out. Debt Ceiling - GOP will rather see a crash than concede. in fact it is in their best interest.
Trumpster Rocks
Trumpster Rocks Apr 29, 2023 6:34PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No hisotoric anything from this administration other than Utter Socialistic Fascism.. but I agree they are also borrowing us into oblivion.
Jay Worley
Jay Worley Apr 29, 2023 6:05PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Until 1st time jobless claims rise up to or above 250k for at least 6 weeks, the recession boogie man will remain that, a scare tactic to get the fed to pivot. I agree with the 5.75 terminal rate, but even then core cpi inflation will remain above 3.5%.
gary leibowitz
gary leibowitz Apr 29, 2023 10:17AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Did YOU see the crash coming from a Pandemic? Anyone that did NOT has no ability to use Common Sense and unbiased assumptions.  The Fed Funds at 4.5% has caused a trillion plus dollar debacle. predictable and I posted about the possibility not 2 weeks before it happened.  40 years of disinflation with no sign we are getting back to it. China alone will make sure commodity prices stay high as their 3 year lockdown is over.  To declare great earnings at a negative 2.5% says it all.  We already had the major push from a post pandemic. Already ready have historic job creation. how in the world will we improve on that? Peak, a generational PEAK! 2023 will go down as a 40/50% drop before year is out. Debt Ceiling - GOP will rather see a crash than concede. in fact it is in their best interest.
joaquim Costa
joaquim Costa Apr 28, 2023 5:54PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Very informative article!
Jim Domeischel
Jim Domeischel Apr 28, 2023 10:49AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Very informative article!
Paul Barron
Paul Barron Apr 28, 2023 10:49AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
It really shows the writers weakness and misunderstanding in certain aspects. Im not a fan. There are different opinions out there. Watch for others
Billy Bilnaad
Billy Bilnaad Apr 28, 2023 10:49AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Paul Barron indeed. Not a fan of this guy
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email