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Weekly Market Update for May 31, 2024

by Jared Plotz, Director of Research

Like Memorial Day in Minneapolis on Monday, the stock market faced some showers this week, ending its streak of five consecutive weekly gains. The S&P 500 ended -0.51% lower, while the Nasdaq saw a larger -1.10% move. Preferred stocks inched up a bit despite another 3 basis-point move higher in the 10-yr Treasury yield to 4.50%.

As Jim mentioned last week, the economy is showing some signs of slowing, and on Thursday the Q1 GDP estimate was revised down to a +1.3% annualized rate, from the initial estimate of +1.6%. Yet the signals are mixed, and GDP is still expanding. Consumer confidence showed a big uptick (following three months of decline), with the May index rising to 102.0 from 97.5 in April. Retail spending and auto sales are stalling, while travel and tourism remain strong. Tighter credit conditions paired with high interest rates continue to constrain lending growth and home turnover. Amidst the noise, the Federal Reserve’s timeline to cutting rates has elongated, with investors pricing in just one cut, possibly two, by year end. The probability of a cut by September has fallen to just a coin flip. While such timing continues to slide back and forth, we still believe lower rates are due to come and that locking in current yields is attractive.

Earnings reports in the Technology sector caused volatility later in the week. Various software companies noted heightened budget scrutiny by clients as macro headwinds persist and prioritization of AI-related spending crowds out IT spending elsewhere. While this shouldn’t be a negative for our AI-exposed holdings, they faced some unrelated pressure as well. Nvidia (NVDA) traded lower Thursday on reports that the US would delay shipments of AI chips to the Middle East due to concerns some are being diverted to China. And yet NVDA still ended the week higher. Super Mico Computer (SMCI) fell this week after competitor Dell Technologies reported they are seeing momentum in their AI servers and may be undercutting others’ prices. We still believe SMCI has the upper hand and extraordinary customer demand in a “growing pie” for all, but the competitive landscape requires a watchful eye.

Next week will be busy on the economic front. We should get the most recent construction and manufacturing data on Monday. Services data will come Wednesday. Then the employment report for May will be released Friday. On top of that, Nvidia is set to conduct a 10-for-one stock split after the markets close next Friday. This will cause the number of shares in clients’ accounts to go up 10x, while the price will be adjusted to 1/10th its previous price. Now that our local Timberwolves have been sadly bounced from the playoffs after a terrific year, Minnesota clients may have a few more evening walks in store, a silver lining.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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