Monthly Economic Update: May 2019


Hello, folks! This is Derek Merkler, fiduciary financial advisor back again with my May 2019 economic update.

April was another positive month for the markets. All 3 of the major domestic indices posted gains. The Dow Industrials added 2.6%, and the NASDAQ Composite was up 4.9%. Meanwhile, the S&P 500 increased by 3.9% –and wrapped up its best 4 months of performance in almost 9 years.[i] International stocks increased by 2.81% for the month.[ii]

So, what happened last month? Well, we received stronger economic data updates than many people anticipated –especially for economic growth and corporate earnings.

For example, the latest reading for Gross Domestic Product indicated that the economy grew by 3.2% in the 1stquarter. Economists predicted growth that was closer to 2.5%. Instead, the initial reading was the best 1st-quarter results since 2015 –and the 1sttime since then that growth exceeded 3% between January and March.[iii]

Corporate earnings have also been surprisingly strong, so far. When earnings season started, many investors were preparing to weather some choppy results. For months, experts discussed how the effect from 2018’s tax cuts would no longer help drive corporate profits. As a result, earnings would disappoint starting in the 1stquarter of 2019.

By the last full week of April, however, the initial earnings results were telling a different story. FactSet Research reported that almost half of the S&P 500 had shared their reports, and 77% beat their own earnings estimates. Of course, we still have many reports to receive so no one can say yet how this earnings season will end. As of April 26, FactSet was still projecting a year-over-year decline for corporate earnings. Credit Suisse, on the other hand, forecasted an increase of as much as 3%. Either way, the initial results seem to indicate that 1st-quarter corporate earnings are better than many people expected.[iv]

Stocks responded to these results by climbing even higher. In the last full week of April, both the S&P 500 and NASDAQ Composite reached new record highs. And all 3 major indexes have experienced double-digit gains for the year.[v]

The markets have come far since the decline we experienced late in 2018 and the doomsday predictions that those declines engendered. Don’t get me wrong.  I have no specific prediction regarding what may happen in markets over the next few months or years, nor do I expect unrealistic returns for any asset class.  Instead, I recognize that short-term market moves are often based more on emotion and behavioral biases than any changes in the underlying fundamentals.  As such, I find it important to emphasize those fundamentals and keep my clients focused on their plan rather than the extreme noise offered by the financial media.  As always, if you have questions, I’m happy to chat.

That’s it for this month’s economic update. See you next time!



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