Accretive May 2024 Market Update

June 5, 2024

Equity markets climbed in May.  US stocks continued to lead the way, both large and small.  Developed foreign markets nearly kept pace, while emerging market stocks were a material laggard.  Much of the excitement in public and private markets has continued to be centered on artificial intelligence and the associated investment cycle.  While the investment cycle is real, the future economics of artificial intelligence and the returns on current and future investment are still unknowable.  At this point many return predictions are possible, but the probabilities of such predictions are highly uncertain, and the range of potential outcomes seems very wide.  Meanwhile, the bar for surpassing the most optimistic predictions, and the market’s implied probability of meeting or surpassing those predictions, keeps grinding higher.  Whether or not the exuberance has been rational remains to be seen.  

In the fixed income market, interest rates ticked lower while credit spreads have remained historically tight.  This tightness is, in some ways, surprising while in other ways it makes more sense.  Higher borrowing costs should make leverage riskier and push more heavily indebted borrowers into distress, either because the costs have ticked up in real-time or they need to refinance maturing borrowings at a significantly higher rate.  To a certain extent this has happened, as bankruptcies have risen in number but have remained relatively small in size. However, the need for capital among private sector borrowers is lower and in relatively shorter supply.  The US government is running large budget deficits (in an economic expansion, in “peacetime”) that need to be financed regularly. Thus, the supply of treasuries is increasing meaningfully while the supply of bonds for creditworthy borrowers has not kept pace.  The supply/demand imbalance seems to have kept spreads tight until there is a reason, potentially a crisis or recession, for them to widen.  

The backdrop on the economy has plusses and minuses.  It is growing in nominal terms but less so in inflation-adjusted terms and seems capable of muddling through.  The labor market appears to be normalizing but holding up. The inflation fight seems to be two steps forward, one step back.  It remains to be seen if inflation can get back to the Fed’s target and, if so, for how long.  The Federal Reserve is running a tighter monetary policy that raises borrowing costs on consumer finance, riskier borrowers, and the US government.  The Federal Government, by nature of the large deficit spending, is running an expansionary fiscal policy.  So far, the forces of the government’s fiscal policy seem to have dominated the Federal Reserve’s monetary policy.  

Ironically, a large part of the budget deficit increase is due to the government’s own borrowing costs, and rate cuts may result in less expansionary policy from the US government.  Absent rapidly falling rates, we struggle to see how the expansionary fiscal policy meaningfully reverts as the structural bias may be for more deficit spending as a percentage of GDP rather than less.  Due to this setup, it is possible that inflationary biases in the US economy are structurally stronger than the deflationary ones from the pre-Covid era.

Market Insights

Other related articles

Read other related articles from this category.

Important Information

Accretive Wealth Partners, LLC (“Accretive Wealth”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Accretive Wealth and its representatives are properly licensed or exempt from licensure.This commentary is a general communication and the information contained herein is being provided for educational and informational purposes only. This commentary does not constitute investment advice and it should not be relied on as such. It is not intended to be and should not be considered a solicitation to buy or an offer to sell a security or a recommendation for any specific investment product, strategy, security or any other purpose. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. Any examples used are generic, hypothetical and for illustration purposes only. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions that are solely the opinion of Accretive Wealth and should not be construed as indicative of actual events that will occur.Any performance presented herein is for illustrative purposes only. Past performance shown is not indicative of future results, which could differ substantially.  Current data may differ from data quoted.The views and strategies described herein may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities or gain exposure to such asset classes and financial markets.Information contained herein that is not proprietary to Accretive Wealth has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Accretive Wealth.For additional information, please visit our website at