After a difficult first quarter, April’s data was better. But, in aggregate, May has not continued that improvement. Job growth has slowed further, taking it closer to a risk level. Plus, the interest rate outlook continues to deteriorate, with the yield curve now inverted for a period of weeks. Not all the news was bad: both consumer and business confidence improved, which should help growth going forward. Overall, though, risk levels have increased somewhat.

I do a semiannual update of my economic and market outlook every year, usually in several versions over a one- to two-month period. In the past couple of years, that strategy has worked. Fundamental conditions didn't change much over that period, even though headlines often did.

“Sell in May and go away” was certainly on point last month. With U.S. and global markets down significantly, investors closed out the month with a level of worry we have not seen since the end of 2018. Let’s take a look back at this volatile month, as well as what we might expect going forward.

Yesterday, the tech stocks got hit hard on news that Washington will be taking a much harder look at regulating them. Trade worries continue to reverberate throughout the market. And fears of a more severe slowdown—or even a recession—are building as the yield curve remains inverted. Further, the Nasdaq moved into correction territory yesterday (defined as a decline of more than 10 percent from the peak), although as of this writing, it was showing signs of a strong bounce today. 

There were only a handful of important economic updates last week, but many came in better than expected. We will see a full slate of reports in the week ahead as we kick off the new month.

May was a tough month, with U.S. and international markets down. At the same time, last month’s decline could be considered modest, and it was not based on fundamentals. Instead, it was all about confidence, which was rattled by a reignited trade war with China and proposed tariffs on Mexico. Still, there was some good news. Consumer spending picked back up, and job growth remained strong.

Much of the recent market decline has been due to worries that the U.S. and China have been intensifying the trade confrontation, rather than trying to come to a deal. With the recent announcement by President Trump that he intends to impose tariffs on all imports from Mexico, trade risks have risen even further and markets have continued to drop. So, what could this latest round of tariffs mean for investors and for the markets?

Yesterday, we talked about why it might be 1998—or 1999—all over again. After all, many of the conditions are similar. Although growth continues for now and we may get a lifeline, you might be concerned that the economy could be settling into a recession in the next couple of quarters. Our most recent experience of a recession and market decline, 2008–2009, has left horrific memories. So, should we be panicking? In a word, no.

Recently, I've fielded a few calls from advisors asking for my thoughts on media coverage declaring that current market conditions are similar to those of the late 1990s. Their clients are worried about what might happen. Could we see a replay of 2000?

Brad here. Starting this week, our Monday Update posts will be brought to you by Sam Millette, fixed income analyst on Commonwealth's Investment Management and Research team. Take it away, Sam.