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Wall Street experienced a robust upswing last month (defying the famous adage “Sell in May”), driven by fresh expectations of Federal Reserve rate reductions in the initial phase of the month, strong corporate results, and the artificial intelligence (AI) craze. This month, all three key U.S. equity indexes soared to unprecedented heights.
The S&P 500 surpassed the 5,300 mark, the Dow Jones Industrial Average reached 40,000, and the Nasdaq Composite Index broke through the 17,000 threshold for the first time. The S&P 500, the Nasdaq and the Russell 2000 have gained about 3.4%, 5.7% and 2%, respectively, in the past month, while the Dow Jones has lost 0.3%.
Let’s delve a little deeper into the top ETF stories of May.
Fed Rhetoric Regarding Rate Cuts
Although the Fed rate cut bets strengthened in early May, rising rate worries resurfaced at the end of the month due to sticky inflation and hawkish Fed minutes. There is lingering uncertainty over the timing of the rate cuts, which recently cast a pall over investor confidence.
The benchmark U.S. treasury yield was 4.55% on May 30 versus the monthly closing high of 4.63% recorded on May 1 and a low of 4.36% recorded on May 15. Approximately 82% of global fund managers anticipate the Fed's initial rate cut in the latter half of the year.
In the 12 months through April, the PCE price index advanced 2.7% after advancing 2.7% in March. Economists polled by Reuters had forecast that it would climb 0.3% in the month and 2.7% on a year-on-year basis. Investors would carefully assess U.S. economic data points and further Fed rhetoric to gauge the timeline of the first rate cut.
If rates remain higher for longer, high interest rate-beating ETFs will likely do well. iShares Floating Rate Bond ETF (FLOT - Free Report) , which performs well in a rising rate environment, has advanced about 0.5% past month. The fund yields 5.37% annually. Putnam BDC Income ETF (PBDC - Free Report) , another beneficiary of the rising rate backdrop, has gone up 2% past month. The fund yields 9.07% annually.
US Economy on Strong Footing
Recent data indicates that the U.S. economy is on track for another robust GDP increase in the second quarter. In May, U.S. business activity surged to its quickest rate in over two years following a couple of months of moderated growth, with the service sector leading the charge. The U.S. consumer confidence climbed in May, reversing a three-month downward trend.
If the U.S. economy remains strong, domestically-focused small-cap ETFs tend to do well. Avantis International Small Cap Value ETF (AVDV - Free Report) and Invesco S&P Small-Cap Momentum ETF (XSMO - Free Report) are up 6.1% and 6.7%, respectively, past month.
Will the AI Rally Continue?
The AI euphoria, which was considered an overhype, once again took the spotlight thanks to NVIDIA's (NVDA) exceptional earnings report. The report has infused considerable optimism into the global AI wave.
The execution of AI requires significant energy resources. To meet that high demand, the usage of clean energy has been on the rise. Hydrogen ETFs like Global X Hydrogen ETF (HYDR - Free Report) (up 27.4%) and other clean ETFs like ProShares S&P Kensho Cleantech ETF (CTEX - Free Report) (up 21.9%) soared in the month of May.
The ongoing AI boom, which led to an increased need for clean and sustainable energy made this possible. Can the rally continue in June? Most likely, but the wining momentum may be a tad slower (read: Hydrogen ETFs Soared in May: Here's Why).
Nasdaq Hit 17,000-Mark for the First Time in May: More Gains Likely?
Key U.S. equity indexes hit several records in May. Although worries about higher-for-longer rates have been doing rounds, the sentiment on Wall Street toward stocks is increasingly positive, reflecting a brighter outlook for both earnings and economic expansion.
In the last two weeks, three equity strategists have raised their end-of-year forecasts for the S&P 500. With tech demand remaining strong thanks to the AI boom, we expect the rally in the S&P 500 and the Nasdaq to continue in June.
Semiconductor was the winning tech area in May and Invesco PHLX Semiconductor ETF (SOXQ - Free Report) has added 12.4% past month. The average P/E ratio of the fund is 38.5X, which is lower than that of P/E ratio held by ETFs like SHOC and SMH. We can see a further rally in SOXQ.
Will Silver Keep Soaring in June?
Silver has experienced a notable rally in 2024, with abrdn Physical Silver Shares ETF (SIVR - Free Report) adding 14.4% in May.The rally is attributed to various factors, including chances of easing monetary policy in the United States, geopolitical tensions, and increased central bank buying, particularly from China. Silver’s industrial demand is high. However, if rates remain higher for longer, silver bullion may remain subdued.
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Top ETF Stories of May to Watch in June
Wall Street experienced a robust upswing last month (defying the famous adage “Sell in May”), driven by fresh expectations of Federal Reserve rate reductions in the initial phase of the month, strong corporate results, and the artificial intelligence (AI) craze. This month, all three key U.S. equity indexes soared to unprecedented heights.
The S&P 500 surpassed the 5,300 mark, the Dow Jones Industrial Average reached 40,000, and the Nasdaq Composite Index broke through the 17,000 threshold for the first time. The S&P 500, the Nasdaq and the Russell 2000 have gained about 3.4%, 5.7% and 2%, respectively, in the past month, while the Dow Jones has lost 0.3%.
Let’s delve a little deeper into the top ETF stories of May.
Fed Rhetoric Regarding Rate Cuts
Although the Fed rate cut bets strengthened in early May, rising rate worries resurfaced at the end of the month due to sticky inflation and hawkish Fed minutes. There is lingering uncertainty over the timing of the rate cuts, which recently cast a pall over investor confidence.
The benchmark U.S. treasury yield was 4.55% on May 30 versus the monthly closing high of 4.63% recorded on May 1 and a low of 4.36% recorded on May 15. Approximately 82% of global fund managers anticipate the Fed's initial rate cut in the latter half of the year.
In the 12 months through April, the PCE price index advanced 2.7% after advancing 2.7% in March. Economists polled by Reuters had forecast that it would climb 0.3% in the month and 2.7% on a year-on-year basis. Investors would carefully assess U.S. economic data points and further Fed rhetoric to gauge the timeline of the first rate cut.
If rates remain higher for longer, high interest rate-beating ETFs will likely do well. iShares Floating Rate Bond ETF (FLOT - Free Report) , which performs well in a rising rate environment, has advanced about 0.5% past month. The fund yields 5.37% annually. Putnam BDC Income ETF (PBDC - Free Report) , another beneficiary of the rising rate backdrop, has gone up 2% past month. The fund yields 9.07% annually.
US Economy on Strong Footing
Recent data indicates that the U.S. economy is on track for another robust GDP increase in the second quarter. In May, U.S. business activity surged to its quickest rate in over two years following a couple of months of moderated growth, with the service sector leading the charge. The U.S. consumer confidence climbed in May, reversing a three-month downward trend.
If the U.S. economy remains strong, domestically-focused small-cap ETFs tend to do well. Avantis International Small Cap Value ETF (AVDV - Free Report) and Invesco S&P Small-Cap Momentum ETF (XSMO - Free Report) are up 6.1% and 6.7%, respectively, past month.
Will the AI Rally Continue?
The AI euphoria, which was considered an overhype, once again took the spotlight thanks to NVIDIA's (NVDA) exceptional earnings report. The report has infused considerable optimism into the global AI wave.
The execution of AI requires significant energy resources. To meet that high demand, the usage of clean energy has been on the rise. Hydrogen ETFs like Global X Hydrogen ETF (HYDR - Free Report) (up 27.4%) and other clean ETFs like ProShares S&P Kensho Cleantech ETF (CTEX - Free Report) (up 21.9%) soared in the month of May.
The ongoing AI boom, which led to an increased need for clean and sustainable energy made this possible. Can the rally continue in June? Most likely, but the wining momentum may be a tad slower (read: Hydrogen ETFs Soared in May: Here's Why).
Nasdaq Hit 17,000-Mark for the First Time in May: More Gains Likely?
Key U.S. equity indexes hit several records in May. Although worries about higher-for-longer rates have been doing rounds, the sentiment on Wall Street toward stocks is increasingly positive, reflecting a brighter outlook for both earnings and economic expansion.
In the last two weeks, three equity strategists have raised their end-of-year forecasts for the S&P 500. With tech demand remaining strong thanks to the AI boom, we expect the rally in the S&P 500 and the Nasdaq to continue in June.
Semiconductor was the winning tech area in May and Invesco PHLX Semiconductor ETF (SOXQ - Free Report) has added 12.4% past month. The average P/E ratio of the fund is 38.5X, which is lower than that of P/E ratio held by ETFs like SHOC and SMH. We can see a further rally in SOXQ.
Will Silver Keep Soaring in June?
Silver has experienced a notable rally in 2024, with abrdn Physical Silver Shares ETF (SIVR - Free Report) adding 14.4% in May.The rally is attributed to various factors, including chances of easing monetary policy in the United States, geopolitical tensions, and increased central bank buying, particularly from China. Silver’s industrial demand is high. However, if rates remain higher for longer, silver bullion may remain subdued.