Thrivent Asset Management Contributors to this report: Steve Lowe, CFA, Chief Investment Strategist; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Senior Investment Product Manager

The U.S. economy added 390,000 new jobs in May, as employment growth continued to be one of the few bright spots in the U.S. economy. The unemployment rate remained at a healthy 3.6%, according to the Department of Labor employment report on June 3.

But rising prices for gasoline and consumer goods continued to be a drag on the economy. The average price at the pump rose by 11.47% in May, from $4.21 per gallon at the end of April to $4.67 at the end of May. Rising food prices also continued to squeeze consumers, with prices up 10.8% year-over-year through the end of April, according to the U.S. Bureau of Labor Statistics.

The Consumer Price Index (CPI), which is a common measure of inflation, rose 0.3% in April – and 8.3% over the previous 12 months. But for all items except food and energy, the CPI was up 6.2% for the most recent 12-month period. Rising vehicle prices have also contributed to the inflation spike, with new vehicle prices up 13.2% over the previous 12 months and used vehicle prices up 22.7%.

After a poor start to the year, the stock market leveled off in May, with the S&P 500^® Index rising 0.01% for the month – and 0.18% including dividends. But the NASDAQ continued to slump, dropping 2.05% in May. For the year, the S&P 500 was down 13.30% through the end of May (12.76% including dividends), while the NASDAQ was down 22.78%.

Drilling down

U.S. stocks level off

Despite continuing concerns over inflation, the war in Ukraine, and the accelerating monetary tightening policy of the Federal Reserve (Fed), the S&P 500 Index managed a 0.01% gain in May, from 4,131.93 at the end of April to 4,132.15 at the May close. The total return, including dividends, was up 0.18% for the month but down 12.76% through the first five months of the year. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)

The NASDAQ Index continued to drop in May, down 2.05% for the month, from 12,334.64 at the end of April to 12,081.39 at the May close. Year-to-date, the NASDAQ was down 22.78%. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Retail sales edge up

Retail sales were up 0.9% in April, as consumers continued to increase spending as the price of goods increased due to inflation, according to the Department of Commerce retail sales report issued May 17. Compared with the same period a year earlier, retail sales were up 8.2% in April.

Building material sales were down 0.1% for the month of April but up 1.7% compared with April 2021, while auto sales were up 2.2% for the month but down 2.4% from a year earlier; department store sales were up 1.1% for the month and 2.9% from a year earlier. Non-store retailers (primarily online) were up 2.1% for the month and 12.7% from a year earlier. Sales for food services and drinking places moved up 2.0% in April and up 19.8% from a year earlier, with more Americans returning to bars and restaurants as Covid-19 restrictions eased.

Employment growth continues

Employers added 390,000 new jobs in May, according to the Department of Labor. That followed solid job growth of 436,000 new jobs in April and 398,000 new jobs in March. The unemployment rate remained the same at 3.6%, as more people seeking work entered the job market.

Employment growth was solid across multiple industries, led by professional and business services, transportation and warehousing, construction, and state government. Total number of unemployed persons remained little changed at 5.7 million. Average hourly earnings for all employees on private nonfarm payrolls was up $0.10 per hour in May at $31.95 per hour. Over the past 12 months, average earnings have increased by 5.2%.

Energy and Utilities lead all sectors in May

The Energy sector of the S&P 500 jumped 15.77% in May, followed by Utilities, up 4.32%, to lead all sectors for the month. Six of the 11 sectors were in positive territory while the other five declined. Real estate fared the worst, down 5.02%, followed by Consumer Discretionary, down 4.85%, and Consumer Staples, down 4.61%.

The chart below shows the results of the 11 sectors for the past month and year-to-date:

Treasury yields flat

Bond yields stabilized in May after a sharp rise through the first few months of the year in response to rate hikes by the Fed. The yield on 10-year U.S. Treasuries dropped 0.05% for the month, from 2.89% at the end of April to 2.84% at the May close. Interest rates may rise further throughout the year, with the Fed expected to make multiple rate hikes in an effort to tame inflation.

Oil prices continue to surge

Oil prices climbed higher in May due to the embargo on Russian oil and increased demand due to a rebound in global travel as businesses recovered from the pandemic slowdown. West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, jumped 9.53% in May, from $104.69 per barrel at the end of April to $114.67 at the May close. Oil prices have jumped 52.47% since the start of the year.

International equities stabilize

International equities were little changed in May despite the war in Ukraine and rising inflation throughout Europe and Asia. The MSCI EAFE Index, which tracks developed-economy stocks in Europe, Asia, and Australia, edged up 0.21% for the month, from 2,033.70 at the end of April to 2,037.87 at the May close. For the year, the index was down 12.76%.