The month of May saw some interesting market movement. Many securities and companies were down or flat for the month from the fears regarding the US debt ceiling. But as is the case year-to-date (YTD), a small handful of tech names shouldered the load and carried the US economy on their backs.
May Market Performance:
May Portfolio Performance:
As seen above, the NASDAQ and the S&P500 were leaders in May and have done well YTD. However, this is on the shoulders of 8 tech companies including Nvidia and Google / Alphabet. The below chart illustrates just how much of the S&P500’s return has come from such a small number of companies. This concentration of returns began in March and has carried through May with Nvidia taking off based on the future of AI adoption.
The concentration of returns in the S&P500 has been helpful to the index so far this year, but from a long-term investment perspective, it can cause potential concentration risk. With the fate of the index in the hands of such few companies, this can cause volatile swings both up and down. With that being said, there are ways to still gain exposure to the S&P500 while limiting that concentration risk. This can be achieved through ETFs such as the Invesco S&P Equal Weight Index (EQL), which equally weights all 500 companies. This results in further diversification and greater exposure to the ‘smaller’ names in the index.
As mentioned above, for the majority of indices, May was a pullback in returns due to the US Debt Ceiling negotiations. As of this writing, the Senate has passed the debt ceiling bill. This raises the ceiling through January 2025. Leading up to the vote, the markets generally reacted negatively on fears that the US would default and wreak economic havoc. Now that there has been a resolution, the markets and global economy can breathe a sigh of relief.
With that, I wanted to look back on how the S&P500 and its relative sectors performed in the time after previous debt ceiling negotiations… spoiler, it is good news the longer you wait…
Average S&P500 and Sector Performance Around Past Debt Ceiling Negotiations
Name / Sector | % gain 1 month after resolution | % gain 2 months after resolution | % gain 3 months after resolution | % gain 6 months after resolution |
S&P500 | 1% | -1% | 4% | 7% |
Consumer Discretionary | 1% | 1% | 5% | 6% |
Consumer Staples | 3% | 3% | 4% | 8% |
Energy | -3% | -6% | 0% | 4% |
Financials | 0% | -2% | 4% | 4% |
Health Care | 3% | 2% | 6% | 8% |
Industrials | 2% | 0% | 6% | 10% |
Info Tech | 4% | 2% | 8% | 11% |
Materials | 1% | -4% | 4% | 5% |
Communication Services | 2% | -2% | -1% | 1% |
Utilities | 3% | 0% | 2% | 7% |
Source: Mackenzie Investments and Bloomberg, Morgan Stanley Research
Past performance does not guarantee future performance.
And on that good note, we look forward to what June brings. If you have any questions don’t hesitate to reach out.
Thanks,
