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Economic conditions

U.S. Stocks Tumble in May Amid Fed Concerns and Economic Data

Strategic Insights

— 1 min read

U.S. stocks took a plunge in May as the Federal Reserve's comments and economic data fueled uncertainty about inflation and interest rates. The Dow Jones Industrial Average dropped 1.75%, the Nasdaq Composite Index plummeted 6.19%, and the S&P 500 Index sank 3.09%. Despite solid economic expansion, with growth in first-quarter gross domestic product revised upward to 5.3%, investors remained cautious due to rising inflation concerns and the Federal Reserve's hawkish stance.

Key Takeaways:

  • Economic data released in May pointed to solid economic expansion, with first-quarter gross domestic product growth revised upward to 5.3% and non-farm payrolls adding 138,000 in April.
  • The Federal Reserve raised interest rates by 25 basis points and left the door open for further tightening, citing "some further policy firming may yet be needed" to address inflation risks.
  • Technology shares led the decline, with Dell's gloomy earnings news and Microsoft's software agreement contributing to the decline.
  • Financial shares were lower due to American International Group's first-quarter earnings miss and weaker-than-expected earnings from Federated.
  • Retailers reported mostly upbeat same-store sales figures for April, with Wal-Mart, Target, Costco, American Eagle, Limited Brands, and the Gap all reporting pleasing results.
  • Auto group sales declined, with General Motors, Ford Motor, and Daimler Chrysler all reporting lower April sales.
  • Deals were abundant in May, with notable M&A transactions including Boeing's acquisition of Aviall Inc. for $1.7 billion and Wachovia Corp.'s purchase of Golden West Financial Corp. for $5.75 billion.
  • Warren Buffett's Berkshire Hathaway investment vehicle made a $4 billion purchase of an 80% stake in Israeli toolmaker Iscar.

Statistics:

  • The Dow Jones Industrial Average dropped 1.75% in May.
  • The Nasdaq Composite Index plummeted 6.19% in May.
  • The S&P 500 Index sank 3.09% in May.
  • First-quarter gross domestic product growth was revised upward to 5.3% in May.
  • Non-farm payrolls added 138,000 in April.
  • The unemployment rate remained unchanged in April.
  • The ISM manufacturing index rose 1.8 points to 61.2 in May.
  • The Philly Fed index rose 4.9 points to 26.5 in May.
  • The ISM services index rose 3.5 points to 55.6 in May.

Sources:

  • Bloomberg
  • CNBC
  • Reuters
  • Wall Street Journal
  • Fortune

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