Client Letter | Stocks Benefit From Solid Fundamental Foundation | June 5, 2024

April showers brought May flowers as markets emphasized economic growth and corporate profits. The S&P 500 ended May above where it ended in March. So, as you prepare for summer vacations, how much should you worry about your stock portfolios?

First, based on history, stocks tend to do fine between Memorial Day and Labor Day, with the S&P 500 rising 1.8% on average between holidays with gains 70% of the time (source: Bespoke). Also, stocks tend to do better the rest of the year when they rise in May, with an average June–December gain of 5.4% with positive returns 73% of the time. Seasonality is not particularly problematic.

Investing involves much more than seasonality. Looking at the U.S. economy, slower growth in the first quarter of about 1.3% is expected to be followed by a slight pickup in the second quarter. Consumer spending did slow in April as inflation remains elevated and may slow further now that excess savings from the pandemic have generally been spent. However, business investment — particularly in artificial intelligence — is helping pick up the slack. The Fed’s preferred inflation measure held steady in April at 2.8% annually. Still, it will likely come down further over the year's balance as the economy slows and higher interest rates continue to impact big-ticket purchases.

Corporate America has done its part in keeping the stock market well-supported, even underneath elevated valuations. The market grew about 10% during the fourth quarter, excluding losses incurred by a Bristol Myers Squibb acquisition. Guidance was mainly upbeat. Some retailers, such as Walmart and Target, announced price cuts to help fight inflation.

Political uncertainty has ratcheted higher following former President Donald Trump’s conviction. The potential market impact of the election is tough to predict. Still, we know the differentiation between Trump and President Biden is widest in foreign policy, immigration, regulation, taxes, and trade, so stocks tied to those issues could see big swings. We also know from history that volatility tends to pick up in the early fall before rallying after the results. The economy is usually the deciding factor, so .

We continue to follow global headlines. The possibility of China’s military aggression toward Taiwan remains perhaps the most significant potential geopolitical shock to the global economy, given Taiwan’s strategic importance to global semiconductor production. Tariff increases are likely no matter who wins in November. Finally, we cannot dismiss potential oil shocks as the war in the Middle East rages. These risks seem manageable for the diversified global economy and financial markets.

Don't hesitate to contact us or your financial advisor with questions.

Sincerely,

Dana Morton
Registered Financial Adviser
LPL Research

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^{All index data from FactSet.}

^{The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.}

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