Overview
Markets in May saw a tug-of-war between optimism on cooling inflation and lingering concerns about global trade and labor softness. Early in the month, volatility picked up as bond yields rose and geopolitical headlines resurfaced. By month-end, strong tech earnings and stable central bank guidance helped lift equities back into positive territory.
U.S. Market Performance & Policy
Equities drifted lower in the first half of May before recovering late in the month. The S&P 500 closed just under 6,000, while the Nasdaq posted outsized gains on strength from Microsoft, Meta, and semiconductor stocks.
The Federal Reserve left its benchmark rate unchanged at 4.25–4.50%, while reiterating a data-dependent stance. Futures markets priced in ~50% odds of a rate cut later in the summer, reflecting signs of easing price pressures and modest growth.
Key Economic Data (U.S.)
Fed Funds Rate: 4.33% (unchanged in May)
Unemployment: 4.2% (flat vs. April) M2 Money Supply: $21.9 trillion (gradually rising)
Consumer Confidence: 95.0 (down from 97.8 in April)
Core PCE Inflation: +0.2% MoM; 2.7% YoY
Cooling inflation data supported investor sentiment, though consumer confidence showed continued sensitivity to prices and policy uncertainty.
Consumer & Corporate Trends
Corporate earnings were mixed but highlighted resilience in tech and services. Retail sales grew modestly at +0.3%, led by healthcare and housing-related categories. Buybacks continued at a strong pace, with Apple, Alphabet, and JPMorgan leading activity.
Manufacturing activity steadied at 52.0, while services remained in expansionary territory at 54.7. Both figures reflected slower but stable growth, despite wage pressures in certain sectors.
Canadian Market Update
The S&P/TSX Composite gained around 1.8% in May, closing just above 26,600. Energy stocks advanced on firmer oil prices (above $80/barrel), while financials delivered steady earnings. Technology and industrials also supported the index, offsetting weakness in materials.
The Bank of Canada held rates steady and emphasized patience as inflation continued to drift toward its 2% target. Housing activity showed resilience, with steady sales in Ontario and British Columbia despite elevated borrowing costs.
Canadian banks reported stable credit quality and strong capital positions, signaling confidence heading into the second half of the year.
Outlook
In the U.S., cooling inflation and steady labor markets point to cautious optimism, though confidence and global trade risks remain watchpoints. In Canada, firm banks, energy strength, and central bank flexibility provide a constructive backdrop heading into the summer.