June 3, 2024

Institutional BlogNews

Rockbridge Institutional – May 2024 Market Review

Uncertainty Today

Markets continue to be bullish on the future of AI. Nvidia, considered by some analysts to be a bellwether for the industry, turned in another blockbuster quarter with earnings up 21% and revenues up 18% over the previous quarter. It returned an eye-popping 295% over the past year. Yet, while profound, AI’s future remains unpredictable. The short-term impact on various markets is sure to be volatile. Care must be taken not to project short-term market ups and downs far into the future.

Markets respond to uncertainty for inflation and the Fed’s response. Expected inflation does not seem to be out of control. Looking at the spread between nominal and inflation-adjusted bond yields implies expected inflation over the next five years of about 2.5% – within shouting distance of the Fed’s announced objective. Yet, a 3% annual inflation rate means consumers are paying 16% more for a “basket” of goods at the end five years, which is not pleasant.

What Can Go Wrong?

The past twelve months have been rewarding for stock investors. The S&P 500 Index is up almost 30%.  Other stock market indices are up between 12% and 19%. The six largest domestic tech companies (Alphabet, Apple, Google, Meta, Microsoft, and Nvidia) representing 29% of the S&P 500, were up an average of over 100%. Truly amazing! But a run up in values of this magnitude makes us think about what can go wrong.

A recent issue of the Economist identifies some potential issues (see “Big Tech’s Capex Splurge May Be Irrationally Exuberant,” in the May 18th issue). Listed as problems in today’s rapidly changing environment are overcapacity, commodification of AI models, diminishing returns to scale and the fact that new technologies usually benefit users, not manufacturers. Theoretically, observed market prices reflect the myriad of uncertainties of AI’s future. However, given today’s excitement for the future of this technology surprises could be significant as it unfolds.

Market prices reflect where those excited about the future benefits of this technology trade off with those concerned that we are ahead of ourselves. The economic impact of AI cannot be predicted – it is best to rely on what the market is telling us and hang on for the ride.

Market Review


Stocks continue a positive trajectory in May. The Dow hit 40,000 during the month before retreating a bit.  While all are positive, year-to-date results are more mixed – an 11% return for the S&P 500; 3% for domestic small cap stocks (Russell 2000); and International developed market and emerging market indices are up 7% and 3%, respectively. The S&P 500 Index is heavily weighted to tech stocks, which explains much of its relative performance.


Reflecting a slight drop in yields, bond returns were positive in May. Year-to-date yields are up resulting in losses for longer maturing bonds. The downward shape of the yield curve (short-term rates above longer-term rates) continues to signal Fed easing. However, easing rates in a robust economy is unconventional and, no doubt, helps to explain the Fed’s hesitancy.

Sustainable Investing 

Incorporating sustainable investments in your portfolio can be simple. At Rockbridge, we offer solutions designed to meet your goals.

If you’d like to learn more about integrating sustainability and climate considerations into your investment process,  please visit Rockbridge Institutional  Sustainable Investing to learn more.

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