Highlights

• Sold in May and took a break?
• Nvidia's Impact on S&P 500
• Q1 Earnings in the Books

US Markets

You may be familiar with the adage "Sell in May and go away," which stems from observations in the Stock Trader's Almanac regarding what it terms the "best 6 months of the year." Historically, market seasonality has exhibited discernible patterns, with average returns from November through April notably higher at 7% compared to the relatively modest 2% recorded from May through October, as observed since 1990¹.

However, the month of May this year deviated from this historical trend, with all four major US market indexes posting positive returns. Notably, the Nasdaq, Dow Jones, and S&P 500 indices achieved new all-time highs over the course of the month, signaling resilience and strength in market sentiment despite the prevailing seasonal expectations.

For the first quarter of 2024 earnings season, a substantial 98% of S&P 500 companies have disclosed their actual financial results. Among these, an impressive 78% have surpassed earnings-per-share (EPS) estimates, while 61% have exceeded revenue projections, reflecting robust corporate performance relative to market expectations. The forward 12-month P/E ratio for the S&P 500 is 20.3. The P/E ratio is above the 5-year average (19.2) and above the 10-year average (17.8)².

In particular, Nvidia delivered exceptional returns, recording a notable 32.02% increase in May. This surge was predominantly driven by its earnings report on May 22, 2024, which evidently catalyzed significant market enthusiasm. Remarkably, Nvidia's stellar performance has contributed significantly to the S&P 500's overall ascent this year, accounting for an impressive 34% of the index's cumulative gains thus far, as reported by UBS³. 

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In May, we witnessed positive performance across all sectors, with the Technology sector leading the way in terms of sector performance. Interestingly, Utilities, traditionally perceived as a defensive sector, closely trailed behind.

One of the key drivers behind the strength of the Utilities sector is the escalating demand for electricity stemming from the expansion of data centers, exemplified by those operated by Nvidia for example. These data centers play a pivotal role in advancing technological frontiers, particularly in the domain of artificial intelligence (AI). Presently, data centers account for approximately 2.5% of U.S. electricity consumption. However, projections suggest that by 2030, driven primarily by the proliferation of generative AI applications, this demand could soar to 7.5%⁴.

In May, we witnessed a broad-based recovery across various factors following the pullback experienced in April. Notably, Momentum, Quality, and Growth factors continued to exhibit outperformance, aligning with the prevailing trends observed year-to-date (YTD). Of particular significance is the remarkable performance of Equity Momentum, which achieved its strongest quarterly performance since Q4 1999 during the first quarter of 2024.

US Economy

In May, the economic data painted a picture of softer-than-expected performance across key indicators. GDP growth decelerated to 1.3%, reflecting a moderation in economic expansion compared to previous periods. Additionally, the core Personal Consumption Expenditures (PCE) price index for April registered a 2.8% increase, suggesting a persistent inflationary pressure that could potentially impact consumer purchasing power and overall economic stability.

The April employment report added to the subdued sentiment, revealing weaker-than-anticipated job creation and slower wage growth. Despite this, the unemployment rate held steady at 3.9%, remaining near a 50-year low. This mixed employment picture indicates potential challenges in sustaining robust labor market conditions amidst evolving economic conditions. Moreover, retail sales figures for the period fell short of expectations, signaling potential headwinds for consumer spending—the backbone of economic activity. 

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Global Markets

In May, global markets demonstrated a widespread positive performance trajectory. Notably, the United Kingdom showcased a commendable outperformance relative to Taiwan year-to-date (YTD), despite the stark contrast in their respective sectoral compositions. While the UK possesses a mere 0.94% allocation to the Technology sector, Taiwan boasts a dominant 64.11% weight in this industry. This variance underscores the nuanced drivers behind each market's performance, shedding light on the differential impacts of sectoral allocations on overall returns.

Fixed Income Markets

In May, longer maturity bonds rallied, flattening the yield curve and signaling shifts in investor sentiment in the fixed income landscape. The investment-grade corporate bond market showed resilience, with new issuances totaling over $19 billion, surpassing expectations and reaching approximately $135 billion for the month. This robust supply indicates a strong appetite for investment-grade corporate bonds, driven by favorable market conditions and investor confidence. Despite economic uncertainties, the average oversubscription rate of 3.5 times for new issue deals highlights sustained demand⁵. 

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Alternative Assets

Private debt has solidified its position as a substantial and scalable asset class, appealing to a broad range of long-term investors. By March 2023, the global private debt market surpassed US $1.6 trillion, making up about 12% of the US $13 trillion alternative investment universe. The past decade has seen significant growth in this market, largely driven by banks and public lenders retreating from the middle market, allowing direct lenders to fund larger deals. As a result, investors appear increasingly drawn to the income opportunities in private debt. In 2024, the higher cost of capital is expected to impact sectors and firms differently, depending on their pricing power, business strength, and capital-structure management. This may likely result in dispersion across asset classes, sectors, and issuers.