Broker Check
May 2023 Recap: May momentum continues. Will Big Tech’s rally finally broaden out to other sectors

May 2023 Recap: May momentum continues. Will Big Tech’s rally finally broaden out to other sectors

| June 02, 2023

“AI,” or Artificial Intelligence, has become the latest buzzword to take the stock market by storm. During the Month of May, the S&P 500 index continued to find its footing by ending at +0.5% for the month.  Gains were supported by several positive themes including robust consumer spending trends, better-than-expected quarterly earnings reports and of course, artificial intelligence excitement. Through five months of the year, the S&P500 has risen +11.5%.

Additionally, more good news was reported as a debt-limit deal, brokered by President Biden and House Speaker Kevin McCarthy is expected to be passed in Congress and avoid the worst-case scenario of a US default and federal government running out of cash.

So, while May can be celebrated for its resiliency, we are not out of the woods yet. Despite the market rallying nearly +20% from the October 12, 2022 low, performance has been largely limited to a dozen tech stocks and the inflation battle carries on.

Here are the three market movers that I am watching in June:

  • Market breadth: As I mentioned above, for the past 5 months, the market rally has been extremely thin from a sector participation level with Big Tech being the clear leader of 2023. If this rally is really going to sustain and push higher, other areas of the market need to start participating. The good news is that in May, 8 of the 11 sectors were trading above their 20-day moving average… To put that in context, In April, only 2 of the 11 were above that average. If most of these sectors can remain in a positive trend for June, we could see this market continue to expand.
  • May Inflation Report: June 13th is May’s Consumer Price Index reading. It will be important that the inflation Core number is below consensus (currently at 0.4% Month over month and 5.5% year over year). While that’s still considered high levels of inflation, the rate of change is what matters most right now and below these estimates would mean that inflation numbers came in better than April, which would be positive.
  • June Fed (FOMC) meeting: An interest rate pause is what the markets have been expecting with last month’s continued momentum. April’s disinflation carried over into May, as the latest consumer price index (CPI) reading eased from 5% to 4.9% annualized, the slowest pace since April 2021. Furthermore, a downward revision in first quarter unit labor costs could provide Fed policymakers enough breathing room to hold rates unchanged (pause) at their June meeting. During the last meeting on May 3rd, the Fed raised its key fed funds interest rate by +0.25% to a current rate of 5.00% - 5.25%

If these three scenarios turn out positive, stocks could rise again in June, marking 9 months of gains. That would also mean that the current rally is now longer than the 9-month drawdown of -27% in 2022.