Investors could be pivoting to software as the historic rally in technology stocks continues.

Software companies rallied 21 percent in May, their biggest monthly gain in 25 years. It began with a potentially bullish reversal pattern in Oracle (ORCL) and accelerated as cybersecurity companies like Datadog (DDOG) and Fortinet (FTNT) reported strong results. Then on Thursday, The Information reported that megacap Microsoft (MSFT) plans to release new AI models at tomorrow's Build conference. The tools will help develop software, transcribe speech, create images and perform reasoning. That lifted MSFT more than 5 percent on Friday, its biggest gain in over a year.

Software's rally stands out because the industry has lagged for months and is still negative on a trailing one-year basis. Some investors feared AI would hurt demand for software companies. Others shunned companies like ORCL because of their capital spending and favored hardware firms that benefited from the investment. Did last week's crescendo of buying reflect a change in sentiment? (Chipmakers, which had led the rally for months, also had a potential reversal pattern last week.)

All told, technology rose 20 percent in both April and May. The combined 44 percent surge was the biggest two-month gain since 2001, according to TradeStation data.

Another Positive Week

The broader S&P 500 rose 1.4 percent in the holiday-shortened period between Friday, May 22, and Friday, May 29. It was the ninth straight positive week, matching a streak in late 2023. One more weekly gain would see the index vie with a consecutive 12-month run in 1984. The index also ended a week above 7,500 for the first time ever.

Even with software leading overall, hardware makers dominated at the individual-company level. Dell Technologies (DELL), for example, rose the most since returning to public markets in 2018. Massive demand for AI servers fueled the explosive move. (Server revenue rose 757 percent.) That also helped lift Super Micro Computer (SMCI), which reported strong numbers on May 5.

Micron Technology (MU), a major beneficiary of datacenter investment, continued to rise. MU is the second-best performing member of the S&P 500 this year with a gain of 240 percent, according to TradeStation data. The memory-chip maker also reached $1 trillion in market capitalization last week, along with South Korean rival SK Hynix.

Robinhood Markets (HOOD) gained after releasing an AI-powered trading agent and Trump Accounts. AppLovin (APP) rose after Morgan Stanley noted strong conversion on its mobile-gaming ads.

Peak Hawkishness? 

Last week had some economic data of secondary importance. The government revised first-quarter Gross Domestic Product (GDP) down to 1.6 percent from its earlier reading of 2 percent. Consumer spending and inventory building were lower than previously estimated.

The personal consumption expenditure index (PCE) price deflator rose less than expected in April and initial jobless claims were slightly above forecasts. 

Durable goods orders and consumer confidence, on the other hand, were better than expected.

Interestingly, CME's FedWatch tool showed a 47 percent chance of the Federal Reserve raising interest rates by at least 25 basis points this year. That's down from a 63 percent probability the previous week. 

Two governors, Lisa Cook and Michelle Bowman, made public comments against rate hikes. Have inflation and interest-rate fears peaked? Could a potential resolution of the Hormuz crisis and lower oil prices improve sentiment further?

Solar, Snowflake

Solar energy was the strongest industry group last week as Wall Street focuses on alternate sources of electricity for AI datacenters. 

Software, airlines and metals outperformed as well. 

Energy was the weakest sector overall. Consumer staples and utilities also struggled.

There were also noteworthy movers in the software industry outside of the S&P 500's top gainers:

• Digital Turbine (APPS) ripped 93 percent on strong earnings and guidance. Bank of America also upgraded the advertising software company to buy, citing improved execution.
• Snowflake (SNOW) jumped 48 percent on strong earnings, supported by growth in its AI business. 
• PagerDuty (PD) rallied 38 percent on quarterly results. The small cap also cited increased AI usage.
• Okta (OKTA) surged 34 percent after beating estimates. The provider of identity management noted growth potential from AI agents.
• International Business Machines (IBM) climbed 17 percent, its biggest weekly gain since 2001, as Wall Street focused on its quantum-computing potential.

Charting the Market

The S&P 500 has been grinding steadily higher with few potentially bearish signs. Such price action is common following long-term breakouts to new highs. (Similar moves occurred in early 2024 and mid-2025.)

Wilder's Relative Strength Index (RSI) is still near overbought territory and the 9-day rate of change has remained positive. Those indicators are potentially consistent with short-term bullishness.

Traders looking for pullbacks may eye the May 14 high of 7,517 as potential support. 

At least two important Wall Street strategists also issued positive outlooks on the S&P 500 last week. Evercore ISI set a year-end price target of 7,750, with a 30 percent chance of reaching 9,000. Goldman Sachs raised its forecast from 7,600 to 8,000. Both firms cited healthy earnings growth.

Speaking of earnings, FactSet calculated that analysts expect earnings to grow 22.6 percent this year. That's up from 22.1 percent one week prior and 21.5 percent in mid-May.

The Week Ahead 

This week brings a few important earnings reports and monthly employment data.

The Institute for Supply Management's manufacturing report is due this morning. Credo (CRDO) and Hewlett-Packard Enterprise (HPE) report in the post market.

The government's job openings report (JOLTs) is tomorrow morning. Dollar General (DG) releases earnings in the premarket and Palo Alto Networks (PANW) is scheduled for the afternoon. MSFT's two-day Build event also begins.

Wednesday features ADP's private-sector payrolls report, ISM's service-sector index and crude-oil inventories. Broadcom (AVGO) and CrowdStrike (CRWD) issues quarterly results.

Initial jobless claims are on Thursday along with earnings from Ciena (CIEN) and Lululemon Athletica (LULU).

The week ends with the government's key employment report for May on Friday morning.