May Momentum: Stock Market Optimism Amidst Economic Cool Down and Strong Earnings

The stock market is off to a good start in May, with the S&P 500 up 2.8% so far (through 4 trading days). This follows a rough April, which we believe helped set things up for a positive May.

Here's the bullish ledger for May:

• The economy seems to be cooling down: Recent jobs data suggests it isn't growing too fast, which helps ease inflation worries.

• The Federal Reserve sounds less hawkish: The Fed seems less likely to raise interest rates aggressively, which is good for stocks.

• Earnings season is strong: Most companies that have reported earnings for the first quarter (Q1) have beaten expectations, with the highest overall growth since 2021. This trend is expected to continue in the second quarter (Q2).

• Seasonal trends are positive: Historically, May tends to be a good month for stocks, especially when April is down.

There’s not much major economic data to worry about this week, but earnings reports will be in focus. Several big companies are reporting, and it will be important to continue seeing positive earnings results.

From a technical view, on Monday, May 6th the S&P 500 reclaimed its 50-day moving average (blue line), Relative Strength never got oversold (<30 on the middle graph), and we’ve got MACD momentum turning positive with a cross of the 9 and 12 day moving averages, indicated via the green bar on the far right in the bottom graph.

Some research indicates it could be difficult to set all-time highs, but overall, we believe the stock market could continue its positive trend in May. A cooling economy, a dovish Fed, and strong earnings should support stock prices for now.