Opinion: From slump to surge: What drove stocks to rally in May

Richard Baker

The month of May has a reputation, and it’s not a good one. As an investment month, it’s the equivalent of the drunk uncle everyone is embarrassed to see show up at the family barbecue.

Despite May’s reputation for negative performance, the past May saw U.S. stocks experience strong gains. The S&P 500 was positive over 6%, making it the best May performance since 1990, and more importantly, it swung stocks back to positive territory for the year.

U.S. stocks are split up into 11 sectors, three of which were up big in May. May’s big winners were technology (up 10%), consumer discretionary (up 9%), and communication services (up 9%) in total returns. This is the polar opposite of first-quarter returns, where these same three sectors were down almost 11%.

These gains were propped up by the Magnificent Seven stocks, optimism in trade negotiations with the European Union and strong first-quarter earnings. A key contributor was the stronger-than-expected earnings from some tech companies, which needed to justify their high stock prices, such as Facebook’s parent company, Meta Platforms, Google’s parent company, Alphabet and the semiconductor company behind the artificial intelligence race, NVIDIA.

April’s volatility over trade tensions calmed and paved the way for the market to rebound in May from its low on April 8. The S&P 500 went back above its 100-day and 200-day moving averages, and 60% of U.S. stocks were trending up at month-end. Investors seemed more keen to take risks, which led growth stocks to outperform value stocks.

Looking ahead, it seems the stock market may have already factored in the easing of the tariff threats and strong earnings reports that led May to positive ground. I think there will continue to be some uneasiness in the market until the ongoing tariff policies are resolved. I was concerned that stocks were overpriced at the beginning of the year, but I now believe the S&P 500 is fairly valued as of the beginning of June.

In the accounts I manage, I’m maintaining a neutral position in stocks and bonds, and an overweight allocation to alternative investments as a diversifying hedge for downside protection. I am just slightly favoring growth over value and large caps over small caps. I still see potential for some market negativity as the tariff negotiations approach finalization, but I also see the potential to respond well afterwards and end the year well. I am also keeping an eye on crazy Putin’s response to his bombers getting decimated to a level that threatens their status as a superpower.

When I think about the May market having a big change, I’m reminded of the funny Mark Twain quote where he said, “You know, I’m all for progress. It’s change I object to.” Investing would be much easier if stocks were more like a conveyor belt, where you could hop on and off, but they’re not. As investors, we can’t change the direction of the market winds, but we can learn to adjust our portfolio sails to always reach our destination.

Richard Baker, an accredited investment fiduciary, is the CEO and executive wealth adviser at Fervent Wealth Management LLC in Springfield. He can be reached at richard@ferventwm.com.