May 2022 Review and Outlook


Executive summary:

  • Inflation is still hot with CPI at 8.3%
  • Equity markets, while volatile, finish May close to flat 
  • Regular gasoline sets record high
  • The U.S. economy contracted 1.5% in the first quarter 

Index performance for May:

U.S. Indices Performance

Markets were little changed in May even though all the major indices made new 52-week lows during the month. The volatility we had seen in April bled into the first three weeks of the month before rallying back to finish close to unchanged. The S&P 500, Dow and Nasdaq all bottomed on May 20, while the Russell 2000’s low came on May 12. 

The S&P 500 declined 8.8% in April and hit bear market territory in May with a decline of nearly 21% from its January high. Since that intraday low on May 20, the index rallied nearly 8.5%. Interestingly since the January high, the S&P 500 has had six separate rallies of 3% or more. The previous five have all failed. The key question for the market, of course, is whether this latest rally is a real move from the bottom or just another bear-market rally?

The risk-off (on?) narrative remains the same, with concerns focused on inflation, monetary tightening, Covid and geopolitical tensions. Peak inflation continues to be a major topic, and whether or not we have hit that level yet, remains to be seen. Some of April’s economic data (see below) showed signs of possible slowing, but not enough to woo investors back to equities whole heartily. 

The Federal Reserve’s monetary tightening policy is still front and center. The continued question is “how far and how fast” will they go to rein in inflation. The FOMC on May 4 announced a 50bp rate hike (as expected) and signaled another 50bp hike in June, with more to follow. The Fed also announced it will begin its balance sheet ($8.9 trillion) runoff in June. Chairman Powell acknowledged that getting inflation under control won’t be easy, but he believes there is still a path to a “softish” landing for the economy as opposed to a recession, saying, “So a soft landing is, is really just getting back to 2% inflation while keeping the labor market strong. And it’s quite challenging to accomplish that right now.”

Rate Hike Odds:

Rate Hike Odds
Implied Overnight Rate & Number of Hikes/Cuts

Sector performance total return for May:

GICS Sectors Performance

Russell 2000, one year:

Russell 2000 | One-year Performance

Nasdaq-100, one year:

Nasdaq-100 | One-year performance


The yield on the benchmark U.S.10-year Treasury saw a significant increase to start 2022 from a low of 1.51% to a high of 3.12%. At month’s end, the yield on the 10-year stood at 2.84%. The 2 and 30’s saw similar yield appreciation, with the 30-year yield moving back above 3% for the first time since early 2019.

2-year Treasury yield, one year: 

2-year Treasury yield | One-year performance

10-year Treasury yield, one year: 

10-year Treasury yield | one-year performance

30-year Treasury yield, one year: 

30-year Treasury Yield | One-year Performance

Earnings commentary: 

Corporate profits for the S&P 500 grew in Q1’22 by 9.2%, the lowest growth rate since Q4’20, according to FactSet data. With nearly all the S&P 500 constituents reported, 77% posted a positive EPS surprise while 73% had a positive revenue surprise. Companies are beating consensus EPS estimates by 4.6%, below the five-year average of 8.9%. Sectors that saw outsized growth included Energy (+272%) and Materials (+43%) while Financials (-21%) and Consumer Discretionary (-14%) declined.  


Volatility somewhat subsided by month’s end. The CBOE Volatility Index (VIX), also known as the fear-gauge, spiked early in the month to above 36 on concerns of a slowing economy before closing out May near the monthly lows. 

VIX,  May:

VIX - May

VIX, two year:

VIX - 2 year

Economic commentary:

The U.S. Department of Labor’s May 6 Employment Situation Report for April posted better than expected numbers on job creation (428,000 new vs. 380,000 consensus), and the unemployment rate (3.6%) remained steady compared to March. Hourly wages increased, but below expectations (0.3% vs. 0.5% M/M and 5.5% vs. 5.6% Y/Y) while the labor force participation rate declined to 62.2% from 62.4% M/M. 

April’s headline CPI was inline (0.3% M/M vs. consensus 0.2% and up 8.3% Y/Y), yet we saw another increase in food (0.9% M/M and is now up 9.4% vs. Y/Y) and shelter (0.5% M/M and 5.1% Y/Y) while energy decreased. Less food and energy, core CPI increased 0.6% M/M and 6.2% Y/Y. The thought is that inflation is peaking, but the decrease in April’s numbers was not as substantial as many hoped, raising concerns that inflation might live longer at persistently higher levels than many would like, including the Fed.

PPI for April was slightly better than expected but still running at extremely high levels (0.5% vs. following an upwardly revised +1.6% in March). On a Y/Y comparison, the index for final demand increased 11% (below March’s upwardly revised 11.5%). The index for final demand, less foods and energy, was up 8.8% (vs. 9.6% in March). The concern here is that input/ product costs for producers remain at extremely elevated levels, pressuring corporate profit margins unless they can be passed along to consumers.

April retail sales (which do not adjust for inflation) increased by 0.9% M/M (consensus 1.0%) following an upwardly revised March (1.4% vs. 0.5%). Ex-autos, retail sales increased 0.6% beating consensus of 0.4%.

U.S. Initial Jobless Claims remain at a historically low level but were slightly elevated compared to the last three months. For the week ending May 20, new claims were 210,000 (consensus 215,000), above the three-month average of 188,500. Continuing jobless claims increased slightly to 1.346 million. The four-week average for continuing claims is at its lowest level since 1970.

The U.S. Department of Commerce released the second estimate for Q1’22 GDP numbers showing the economy shrunk by 1.5% annually (consensus at -1.3%). The GDP Chain Deflator (price index) was revised up to 8.1% from 8.0%.

Personal income increased 0.4% in April (below consensus +0.5%), while personal spending increased 0.9% (consensus of 0.8%), below March’s upwardly revised 1.4% level. 

The PCE Price Index was up 6.3% Y/Y versus 6.6% in March, and the core PCE Price Index, which excludes food and energy, rose 4.9% vs. 5.2% in March. On a monthly basis, the PCE deflator rose 0.2%, while core increased 0.3%.

The Conference Board’s Consumer Confidence Index dropped to 106.4 (a three-month low) from an upwardly revised 108.6 in April on concerns of persistently high inflation.

CPI Inflation – MoM:

CPI Inflation – MoM

CPI Inflation – YoY:

CPI Inflation – YoY



Oil prices rallied 9.5% in May. WTI’s front-month contract topped $115 a barrel (a 15% gain from the mid-month low of $100 month). WTI traded as high as $123.70 back in March. The last time we saw prices this high was in 2008. OPEC+ unity ministers will meet later this week to discuss its supply policy for July.

According to AAA data, the average cost of a gallon of regular gas in the U.S. is $4.62, up $0.45 from last month, which is the highest recorded average price in the U.S. ever.

Crude Oil front-month contract for May:

Crude Oil front-month contract for May


Gold declined in May by over 3% and is down 10.5% from the March highs of $2050. For 2022, gold is up about 0.5%.



Persistent levels of elevated inflation in a rising rate environment helped accelerate the U.S. dollar rally. The world’s largest reserve currency reached a high of nearly $105 before paring gains to end the month down 1.1%. The U.S. Dollar Index is up nearly 6.4% in 2022.



Bitcoin lost nearly 26% in May before rallying back late in the month to close out down 17.5%. Since its November all-time highs, Bitcoin has been down over 50%. 


Looking ahead:

There will be plenty of market catalysts in June. On the economic calendar, the May Jobs report is released Friday morning (6/3). Economists are expecting the unemployment rate to improve to 3.5%. The FOMC rate decision will be made on June 15. June 17 will be the “triple witch” options expiration and S&P Index rebalancing, and, finally, on June 24, at the close, we have the annual Russell Reconstitution, traditional one of the highest equity volume days of the year. Underlying all of that is whether or not earnings estimates are still too high. Revisions lower might mean that market valuations have room for decline. Further declines in inflation readings would be a welcome development for the stock market.

The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. All information contained herein is obtained by Nasdaq from sources believed by Nasdaq to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source link