Semiconductors Led Tech Higher in May as Earnings Beat and Inflation Slowed

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Stocks rose for a third month in May, fueled by an explosive rally in chipmakers and artificial intelligence.

The S&P 500 briefly dipped below its April low but quickly rebounded to end the month up 0.2 percent. The Nasdaq-100 surged 8 percent, its third monthly gain above 5 percent this year. The technology-heavy index, home to AI stocks like Nvidia (NVDA) and Microsoft (MSFT), hit a new 52-week high while the S&P 500 remained below last summer’s high.

The AI frenzy came to a peak on May 24 when NVDA forecast revenue 53 percent above Wall Street’s estimates. That briefly lifted its market capitalization above $1 trillion. Alphabet (GOOGL) also introduced new AI tools on May 10.

Last month saw anxiety over the national debt ceiling and mixed economic data. Fitch Ratings placed the AAA credit rating of the U.S. on negative watch as politicians fought over the the borrowing limit. The economic reports showed inflation slowing, employment stabilizing and industrial activity improving.

Assuming the debt ceiling passes Congress, attention will likely focus on some big economic numbers. First comes the employment report on Friday. May’s inflation report is on June 13. The Federal Reserve will announce interest rates and its outlook on June 14. Those headlines could potentially shape sentiment for months into the future.

Big Movers in May

Top Gainers in the S&P 500 Last Month
Nvidia (NVDA)+36%The semiconductor company guided revenue well above consensus as artificial intelligence (AI) fueled demand for its advanced processors.
Advanced Micro Devices (AMD)+32%The semiconductor company beat earnings and revenue estimates. It also benefited from optimism about AI.
Broadcom (AVGO)+29%The chipmaker benefited from enthusiasm toward the semiconductor space. It also received a multibillion-dollar contract from Apple (AAPL).
Tesla (TSLA)+24%The electric-car maker rebounded from a drop in April as CEO Elon Musk shifted away from running Twitter and focused on new models.
Royal Caribbean (RCL)+24%The cruise-line operator gained on reports of improving demand.
Source: TradeStation Data
Top Decliners in the S&P 500 Last Month
Advance Auto Parts (AAP)-42%The retailer missed estimates and cut guidance, citing product mix and supply-chain problems.
Paramount (PARA)-35%The media company missed profit estimates and cut its dividend as streaming costs rose and advertising revenue fell.
Newell Brands (NWL)-32%The junk-rated maker of consumer products missed profit forecasts and cut its dividend as revenue continued to fall.
VF (VFC)-27%The apparel company slid along with other consumer stocks as sales kept falling.
Ulta Beauty (ULTA)-26%The beauty-products company missed sales estimates and lowered margin guidance.
Source: TradeStation Data

Sector Watch

Technology+8.9%
Communications+3.9%
Consumer Discretionary+2.5%
S&P 500+0.2%
Industrials-3.2%
Healthcare-4.3%
Financials-4.3%
Real Estate-4.5%
Utilities-5.9%
Consumer Staples-6.2%
Materials-6.9%
Energy-10%
Source: TradeStation Data

Key Economic Events in May

Below are some key economic events from last month.

  • Inflation drops under 5 percent: The Consumer Price Index rose slightly less than 5 percent between April 2022 and April 2023. It was the smallest increase in almost two years. (5/10)
  • Fitch puts U.S. AAA rating on negative watch: Fitch Ratings put the AAA long-term credit rating of the U.S. on negative watch after lawmakers balked at raising the debt ceiling. The rating agency cited political brinksmanship and lack of fiscal reforms. (5/24)
  • Fed officials inch toward potential rate pause: Minutes from the last Federal Reserve meeting suggested more policymakers may support keeping interest rates unchanged in June. (5/24)
  • First quarter GDP revised higher: The U.S. Commerce Department boosted its reading of economic growth in the first quarter to 1.3 percent from 1.1 percent. Stronger private inventories accounted for the higher gross domestic product (GDP). (5/25)
S&P 500, daily chart, with select indicators and patterns.

What Experts Are Saying

Below are some noteworthy commentaries.

  • The U.S. will avoid a recession this year, according to Goldman Sachs Chief Economist Jan Hatzius. He said the a “very resilient” labor market is supporting real incomes and offsetting tighter credit conditions. Hatzius also thinks the Fed will pause interest-rate hikes, with the potential for cuts in 2024. (5/5)
  • Stocks may keep rising as the Fed stops raising interest rates, according to hedge fund manager Paul Tudor Jones. He cited 12 consecutive monthly declines in inflation, adding that investors have significant cash on the sidelines. (5/15)
  • The S&P 500 may exceed 4,600 this year, according to Piper Sandler strategist Craig Johnson. He noted high levels of negativity, despite major indexes breaking last year’s downtrends. (5/15)
  • The Fed is done hiking rates for now, according to Morgan Stanley bond manager Jim Caron. He said previous rate hikes still need time to take effect. Caron, speaking on CNBC, doesn’t yet anticipate rate cuts. (5/23)
  • The U.S. economy is in better shape than most people think, according to Rick Rieder, head of fixed income at BlackRock. He rejected talk of a slowdown, citing excess savings and healthy spending. Rieder, who oversees $2.4 trillion of assets, said a depress recession is “almost impossible” given the low unemployment rate. (5/23)

Popular Futures Contracts in May

ProductCurrent
Month
ExpirationNext
Month
1-Mon%
S&P 500 E-Mini (@ES)ESM23 (June)6/16/23ESU23+0.3%
Nasdaq-100 E-Mini (@NQ)NQM23 (June)6/16/23NQU23+7.3%
Dow Jones E-Mini (@YM)YMM23 (June)6/16/23YMU23-3.6%
Russell 2000 E-Mini (@RTY)RTYM23 (June)6/16/23RTYU23-1.3%
Source: TradeStation Data

Newsworthy Events This Month

DateEventWhat to Watch For
Thu 6/1ADP Payrolls,
ISM manufacturing
Are there signs of an economic slowdown?
Fri 6/2Non-farm payrollsWill job growth weaken? Will unemployment and wages indicate slower inflation?
Tue 6/13Consumer price indexWill inflation continue to ease?
Wed 6/14Fed meetingInterest-rate decision, projections for future policy, press conference
Tue 6/20Housing starts,
building permits
Will strong demand for homes boost construction?

Security futures are not suitable for all investors. To obtain a copy of the security futures risk disclosure statement Investment and Trading Disclosures Booklet – Futures.

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