Stocks are rising, but investor behavior remains “fragile.” Is the bull market still in its early stages?

The U.S. stock market is turning a corner into a new month, with bullish investors aiming to overcome lingering anxieties over inflation and higher interest rates.

The S&P 500 ended Friday with a weekly decline as the 10-year Treasury yield rose, snapping five straight weeks of advances that had propelled the index to a May gain of 4.8%. This monthly jump marked the index’s best performance since February, bringing its total gain to 10.6% so far in 2024.

“It’s still early cycle for equities,” said Andrew Slimmon, senior portfolio manager for U.S. equities at Morgan Stanley Investment Management. He noted that “fear of missing out” hasn’t kicked in yet, with many investors preferring to sit on the sidelines and benefit from yields of over 5% from cash-like securities in money-market funds.

While U.S. stocks have room to run after major benchmarks reached record highs in May, Slimmon suggests “FOMO” might not kick in until investors see another year of double-digit percentage gains from the S&P 500 in 2024. He predicts that the S&P 500 could see gains in the mid-teens this year, which would likely attract more enthusiasm toward equities.

However, Slimmon describes current investor behavior as “very fragile.” Investors appear more concerned about losing money in equities—typical in the early stages of a bull market—than about missing out on significant gains.

U.S. stocks experienced a roller-coaster ride on Friday as investors weighed new inflation data from the Federal Reserve’s preferred gauge. The S&P 500 made a dramatic turnaround late in the afternoon, reversing its daily losses to finish with a solid gain, though not enough to erase the index’s weekly decline.