May continued April’s strong run off March’s market lows. Maintained ceasefire in the Middle East allowed investors to focus attention on corporate earnings that continue to blow past expectations. The growth rate of 28% year-over-year was more than double what was expected, supporting the largest positive earnings surprise since 2021. Much of the earnings strength came from investments in Artificial Intelligence and its related infrastructure. Semiconductor stocks moved drastically higher, sparking conversation about the similarities between today’s market environment and that of the late 1990s and early 2000s. There is no doubt that the technology sector dominates the market – the sector alone makes up 37.9% of the of the S&P 500. Furthermore, just 20 out of the 500 S&P 500 companies represent 48% of the total market capitalization of the entire Index. As a result, it can be hard to see through the performance of the broad market index to understand what is going on across the market. Concentrated environments can tempt investors to “load the boat” and speculate on the most popular individual stocks and narratives. Exposure, even slightly overweight, to these stocks as part of a diversified equity portfolio is vital to long-term returns. However, we continue to maintain discipline to stay diversified and avoid chasing short-term returns in sacrifice of progress towards long-term goals. As we have experienced in the past, technologies can be disrupted, and new markets can emerge. It remains vitally important to avoid over-concentration in managing risk as part of building durable portfolios and making sustainable investing decisions.
We started June the way that May ended – a few solid green days heading into the first Friday’s BLS labor report. The market was on edge following a disappointing earnings report from Broadcom, which seemed to take the market aback after seemingly endless earnings beats from its semiconductor-producing peers. Then, good news was bad news, the BLS report showed jobs growth well ahead of expectations. May nonfarm payrolls were up 172,000 vs the 85,000 consensus and a tad below April's 179,000, which saw a big upward revision from the initial 115,000 reported. As has been a frequent narrative, more jobs could mean more inflation, especially coupled with elevated oil and gas prices from the Iran conflict. The immediate reaction was bond yields higher and equity and bond prices lower. The rout in equities was felt disproportionately in the stocks that had benefited the most in the market’s recent rally. The tech-heavy NASDAQ 100 traded lower by over 4.75%. However, in support of the case for diversification, 5 out of the 11 S&P 500 sectors actually traded higher, with the historically defensive consumer staples sector leading the way. As the month moves on, the fragile ceasefire in the Middle East will shift back into focus, as the frequency of earnings report wane. If a resolution is reached, momentum is on our side. Historically, years with new highs by this point in the year have seen full-year increases averaging 18.8%, with an 8% gain in the final seven months. A gain through the final seven months of the 20 years that matched that new high pattern failed to occur only three times.
Data sourced from Janney's “June Investment Perspectives" and “MARKETVANE® MONTHLY - JUNE 2026”
