Mega Cap Stocks Propel S&P 500 to Impressive May Gains (Weekly Cheat Sheet)

The stock market wrapped up the holiday-shortened week in the red, but still managed to post impressive gains for the month of May. Mega cap stocks stole the show, with NVIDIA (NVDA) skyrocketing an astounding 26.9% this month alone. The equal-weighted S&P 500 rose a respectable 2.8% in May, while the market-cap weighted S&P 500 did even better, surging 4.8%.This week’s downside bias can be chalked up to normal consolidation activity following the strong run-up in May.

Investors had a full plate of earnings reports to digest, including updates from retailers like Best Buy (BBY)Foot Locker (FL)Kohl’s (KSS), and Dollar General (DG)Salesforce (CRM) was a notable loser, plummeting 13.9% after disappointing quarterly results.

In other corporate developments, ConocoPhillips (COP) announced plans to acquire Marathon Oil (MRO) in an all-stock deal.

The market also had to navigate mixed economic data, headlined by the April Personal Income and Spending report released on Friday. While the Fed’s preferred inflation gauge, the core PCE index, rose 0.2% for the month and 2.8% year-over-year as expected, this report likely won’t give the central bank much confidence that inflation is moving sustainably toward its 2% target.

Bond Market Recap

Treasury yields ended the week mixed in response to the economic data and some lackluster demand at Treasury auctions. The 10-year Treasury yield ticked up 5 basis points to 4.51%, while the 2-year yield slipped 6 basis points to 4.89%. Weak demand was evident at the $69 billion 2-year note, $70 billion 5-year note, and $44 billion 7-year note sales.

Economic Highlights

  • Pending home sales cratered to a 4-year low, plunging nearly 8% in April as mortgage rates spiked. The 30-year fixed rate ended March at 6.9% before jumping to 7.5% by the end of April.
  • In a historic first, Donald Trump was found guilty on all 34 counts in his hush money trial, becoming the first U.S. president ever convicted of felonies. His campaign raised a record $34.8 million in donations in the hours following the verdict.
  • T-Mobile is scooping up most of US Cellular in a $4.4 billion deal aimed at boosting rural coverage. US Cellular will keep 70% of its wireless spectrum and towers while leasing space on 2,100 towers to T-Mobile.
  • Shares of American Airlines nosedived 17% this week after the company slashed its 2024 profit outlook by nearly 20%. It now expects TRASM, a key efficiency metric, to decline 5.5% this year.

Global Market Movers

  • China plans to impose export controls on aviation equipment and other sensitive technology starting July 1 in a bid to bolster national security.
  • Apple’s iPhone sales in China soared 52% in April despite rising competition. Steeper discounts in May could provide an additional lift.
  • Japan stepped in to prop up the yen for the first time since 2022, spending $62.25 billion after the currency hit a 34-year low in April.
  • Eurozone inflation accelerated to 2.6% in May, but likely won’t deter the ECB from cutting rates next week as heavily telegraphed.
  • Saudi Aramco is unloading nearly $11.5 billion in stock to raise funds for diversification projects. The Saudi government currently owns over 82% of the oil behemoth.
  • BYD pulled the wraps off a new hybrid boasting an ultra-long range of 1,250 miles on a single charge. The powertrain will debut in two sedans priced under $14,000.

Commodities Corner

Oil markets remain gloomy amid uncertainty over Fed policy and rising U.S. refined product inventories despite a 4.6 million barrel drop in crude stockpiles. Traders are anxiously awaiting this weekend’s OPEC+ meeting, where the cartel is widely expected to keep production quotas unchanged through year-end.

Copper prices continue to slide on the LME, hovering near the $10,000 level, weighed down by a stronger dollar, unwinding of speculative longs, and mixed economic signals from top consumer China. Gold is treading water, trading around $2,345 per ounce.

Crypto Watch

Bitcoin has stabilized near $68,500 this week, just shy of its all-time high of $73,800 notched in March. Ethereum is also holding steady after vaulting 24% last week on news the SEC approved Ethereum Spot ETFs. Traders are hoping for a repeat of the bitcoin ETF-driven rally seen earlier this year. The total cryptocurrency market cap remains anchored near $2.49 trillion.

The Week Ahead

All eyes will be on the May jobs report due Friday, the final major data point before the Fed’s June 11-12 policy meeting. While rate cut timing has become more uncertain, the ECB is still expected to cut on June 6, which also marks the 80th anniversary of D-Day.

Key economic reports to watch include the ISM Manufacturing PMI on Monday and the unemployment rate on Friday.

The earnings calendar features reports from Hewlett Packard Enterprise (HPE)Lululemon (LULU), and NIO (NIO).Walmart (WMT) will host its annual shareholder meeting and Associate Celebration, while Nvidia (NVDA) will be in focus ahead of its 10-for-1 stock split effective after Friday’s close. Several major conferences are also on tap, including Nareit REITweek and COMPUTEX Taiwan.

Investor Insights

As we navigate the ever-changing landscape of the financial markets, it’s crucial to stay informed and adapt your investment strategies accordingly. Based on the recent market developments and economic data, here are some key considerations for managing your portfolio:

Sectors to Watch for Opportunities

  • Technology: The strong performance of mega cap tech stocks like NVIDIA in May suggests the sector remains attractive. The upcoming 10-for-1 stock split for NVIDIA could generate additional investor interest. Other tech events like the COMPUTEX Taiwan conference may provide insights into emerging trends and opportunities.
  • Retail: While the earnings reports from retailers like Best Buy, Foot Locker, Kohl’s, and Dollar General were mixed, the sector is worth monitoring for potential bargains, especially if consumer spending remains resilient. Walmart’s shareholder meeting and Associate Celebration could provide additional color on the retail landscape.
  • Energy: The upcoming OPEC+ meeting this weekend could be a catalyst for oil prices if the cartel decides to extend production cuts. Investors should watch for opportunities in energy stocks, particularly if crude prices rebound. The Chevron-Hess deal also highlights ongoing M&A activity in the sector.

Risks to Consider

  • Inflation and Interest Rates: While the PCE inflation data came in as expected, it remains above the Fed’s 2% target. This could complicate the timing of potential rate cuts and impact market sentiment. The ECB’s expected rate cut on June 6 could also have spillover effects on U.S. markets.
  • Geopolitical Tensions: China’s move to impose export controls on aviation equipment and other technologies could reignite trade tensions and weigh on global growth. Investors should monitor developments closely and consider the potential impact on supply chains and international trade.
  • Valuations and Volatility: After a strong run-up in May, some investors may be concerned about stretched valuations and the potential for a near-term pullback. The consolidation activity seen this week could persist, especially if economic data or corporate earnings disappoint. Investors should be prepared for potential volatility and have a long-term perspective.

Other Factors to Monitor

  • U.S. Dollar Strength: The rising dollar has weighed on commodity prices like copper and could impact the competitiveness of U.S. exports. Investors should keep an eye on currency markets and consider the implications for their portfolios.
  • Sector Rotation: If interest rates continue to rise and economic growth slows, investors may rotate out of high-growth sectors like technology and into more defensive areas like healthcare, utilities, and consumer staples. Monitoring sector performance and being prepared to adjust allocations could be prudent.
  • Stock Splits and Index Rebalancing: In addition to the NVIDIA stock split, investors should be aware of any upcoming index rebalancing activities that could impact stock prices and trading volumes. These events can create opportunities for investors who are paying attention.

Overall, investors should stay disciplined, diversify their portfolios, and be prepared to adapt to changing market conditions. Keeping an eye on key economic reports, corporate earnings, and geopolitical developments can help inform investment decisions and manage risk in the coming weeks and months.

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