The story of the financial markets for May was—let’s all say it together now—volatility! That should come as no surprise because volatility has been the story for most of the year, and it’s likely to continue to be the story for some time to come. Once again, the last few days of the month were typical of the year overall. On May 29, the markets plunged on fears over political turmoil in Italy and renewed worries over trade, with the Dow Jones Industrial Average shedding nearly 400 points. On May 30, worries eased, and the Dow gained back nearly all those losses, only to lose half of them again on May 31 with a 221-point drop. Talk about a roller coaster!

The dramatic market volatility I discussed in last month’s newsletter continued throughout April as the yield on the 10-Year Treasury rate topped 3 percent for the first time since 2014. Fears of rising interest rates and inflation helped drive the volatility along with uncertainty about how aggressive the Federal Reserve might be in its efforts to “normalize” monetary policy under new chairman Jerome Powell. Though Powell took a “dovish” tone in an April speech in Chicago and expressed optimism that inflation will stabilize at around 2 percent, Wall Street remains nervous.1 That’s because some analysts believe there are several factors that could push inflation higher than the Fed’s target—and even Powell has admitted that if that happens, it could force the Fed to “raise short-term rates too quickly and cause a recession.”

The markets remained high in April but were also largely disconnected from economic reality. Reported corporate earnings reflected an annualized growth rate of just 0.7 percent for the first quarter of 2017.* That’s down from 2.1 percent growth in the fourth quarter of 2016, and even though both of those are positive numbers, neither is anywhere near 4 percent. Annual GDP growth of 4 percent is what Donald Trump has promised if his tax plan and other economic policies are approved—and Wall Street remains irrationally optimistic that he can, and will, deliver.

As expected, the historic stock market drop that kicked off February gave way to a month of high volatility—a pattern I believe will continue. Though the markets regained some of the losses suffered in that 10 percent correction in the first week of February, they closed lower in a turbulent session on the final day of the month.

Your SIS newsletter is coming to you a bit later this month because just after we prepared the letter at the end of January, the markets took a dramatic turn in early February, which I wanted to touch upon. The year-to-date stock market numbers above were severely impacted after the first few trading days in February when the major market indices all suffered historic drops.1 Concerns over inflation, debt, and rising interest rates were all cited as factors in the steep sell-off.