Clearview Portfolio Consulting May Market Recap
Key Points:
• Stocks posted a second consecutive month of strong returns driven by strong earnings growth.
• Major equity indices in the US hit all-time highs despite the ongoing conflict in Iran.
• Fears of elevated inflation continue to weigh on the global economy, but international equity markets pushed higher.
Equities rallied in May on the back of strong earnings in the technology sector. Tech stocks, which now represent about 38% of the S&P500, gained 16% during the month as semiconductor, memory and AI software companies soared on strong earnings growth. The AI buildout along with a resilient consumer pushed year-over-year US corporate earnings to 28% growth in the first quarter. However, not all sectors were positive: 8 of the 11 sectors of the market fell during May with energy (-5.6%), utilities (-5.1%) and consumer staples (-3.2%) faring the worst. For the month the S&P500 advanced 5.3%, the Dow Jones Industrial Average was up 2.9% and the tech-heavy NASDAQ soared 8.4%. Concentration in the S&P500 is starting to worry some investors as large gains are concentrated at the top. Of the 500 stocks in the S&P500, roughly 200 have had a negative return in 2026. Small cap stocks are benefiting from the AI buildout and were up 4.4% in May. The Russell 2000 has gained 18.2% this year.
International markets continued to trend higher with the developed market MSCI EAFE Index up 3.1% while emerging markets (MSCI EM) surged 9.7%. The best performing emerging markets have been Taiwan and Korea, while India and China (top performers of the past) have lagged. The 10 best performing stocks in the MSCI Emerging Market Index are all technology companies and have doubled so far this year as component suppliers of AI infrastructure.
Interest rates moved higher during May with strong economic growth and higher inflation expectations. Bonds were up slightly for the month and are positive for the year. Higher gasoline prices pushed inflation higher and may threaten consumer spending. The longer elevated oil prices linger, the lower the probability of any Fed rate cuts this year. Some economists now expect the Fed’s next move may be a hike if the Iran conflict continues and oil prices remain a threat to the US economy. Despite these risks, equity prices continue to trend higher. The labor market has remained quite resilient despite fears of AI replacing workers. Longer dated oil futures contracts are lower further out on the curve, suggesting that the market expects the war with Iran to come to a near-term resolution.
Sources: Morningstar Direct, Wall Street Journal, First Trust, Merrill Lynch