Don’t be fooled by the S&P 500‘s relatively flat performance in May: there were large moves up and down for many high-profile stocks across multiple market sectors.
Analyzing these market movers can tell us what trends are currently affecting capital markets. Before making major changes to your investment account or retirement plan, consider these four key trends from May.
Nvidia (NVDA -3.04%) stock prices rose 36% last month, pushing the market cap just above $1 trillion (currently at $951 billion). The semiconductor giant reported quarterly earnings that excited investors about the company’s near-term growth potential.
While Nvidia’s revenue fell year over year in its most recent quarter, it accelerated in the last quarter. The forward-looking commentary also suggested that sales would continue to grow, largely due to strong demand from artificial intelligence (AI) applications.
AI is a hot topic for Wall Street right now, and tech investors are getting optimism that much of the post-pandemic macroeconomic slowdown has been overcome. Nvidia’s stock is up more than 150% over the past 12 months and its expected P/E ratio has jumped to nearly 40.
That might seem a bit rich with a looming recession and signs of consumer weakness. Investors are still willing to pay a premium for high-growth stocks that have the stability to overcome intermittent weakness. Other semiconductor powerhouses such as Advanced micro devices, BroadcomAnd Taiwanese semiconductor manufacturing turned in huge profits in May. Investors clearly think the microchip industry is entering a cyclical boom.
2. Estée Lauder
Estee Lauder (EL -1.56%) share prices fell by 25% after a disappointing quarterly result at the beginning of the month. The company has been battling economic weakness in the Asian region, causing sales to fall 12% year-over-year and earnings per share to fall 72%.
The company’s gross margin continued to decline, reaching its lowest level in years, excluding the height of pandemic lockdowns. These factors forced Estée Lauder to downgrade its forecasts, citing difficult conditions in key markets.
This was an extreme example of a major trend that impacted the market last month. The corporate sector has struggled with slowing growth and economic weakness over the past year as companies cut spending. However, consumer spending held up relatively well during that period, despite rising inflation and high-profile layoffs.
That finally appears to be changing — consumer debt is reaching high levels, and retail stocks posted financial results that mirrored the weakness seen in other parts of the economy a few quarters ago. Weaker results led to sell-off across the consumer sector, with Ultimate beauty, Nike, GoalAnd Starbucks among the high-profile companies that are suffering. These companies are facing weak sales and pressure on profit margins.
Walter Disney (dis 0.39%) was one of the entertainment industry stocks that suffered serious losses last month. The company reported quarterly results in May, and investors were particularly discouraged by the results in the streaming business.
Disney+ lost subscribers and that segment is still running at a loss. The rapid evolution of content delivery has seriously disrupted the media business and the major streaming providers are still learning how much to charge subscribers. They also try to determine more accurately how much to pay for content.
The competitive landscape for streaming platforms has changed rapidly and the industry will endure growing pains as the big players adapt. This creates uncertainty and stocks are often volatile when the future is uncertain.
Even if certain aspects of Disney’s business still hold promise, investors are still focused on this important story. A handful of Disney industry peers, including Warner music group, Warner Bros. DiscoveryAnd Foxalso suffered significant losses in May.
Netflix was a notable exception to the trend, posting a 22% gain in May after a promising earnings report suggested the company is overcoming previous troubles that hit the stock hard. Netflix may also have benefited from its reputation as a growth tech stock — that sector had a strong month.
Stock cyber security Zscaler (ZS -5.28%) rose a stunning 50% last month after announcing pre-announced earnings that beat expectations and raised full-year forecasts. Zscaler has been highly volatile in recent years, giving investors a wild ride. It is 60% below the all-time high around $370, but it is 64% above the recent low around $90.
Investors have struggled to find an appropriate valuation for Zscaler and other cybersecurity stocks – all are currently showing exceptional growth rates in one of the most promising sectors, but they have also struggled with slowing growth amid high interest rates and economic downturns. weakness. These factors have led to huge gains and sell-offs in these stocks whenever major company or industry news is released. May was one of those boom months, with Cloud Flame, CrowdStrike, OkayAnd Palo Alto Networks all yield huge profits.
This trend was particularly strong in cybersecurity stocks, but was not limited to that sector. Fast-growing software and cloud stocks such as DataDog, SplunkAnd MongoDB were also among the biggest risers of the month.
The mega-cap tech giants were stronger earlier this year, but optimism is shifting down the chain to smaller companies with higher growth rates and more aggressive valuations. These stocks were hit hard by rising interest rates and slowing growth as investors’ risk appetite declined. With it looking like the Federal Reserve might stop raising rates, investors are trying to get ahead of the next wave of potential economic recovery.
Ryan Downie has positions in Nvidia. The Motley Fool holds positions in and commands Advanced Micro Devices, Cloudflare, CrowdStrike, Datadog, MongoDB, Netflix, Nike, Nvidia, Okta, Palo Alto Networks, Splunk, Starbucks, Taiwan Semiconductor Manufacturing, Target, Ulta Beauty, Walt Disney, Warner Bros. to Discovery and Zscaler. The Motley Fool recommends Broadcom and recommends the following options: long January 2024 call $145 on Walt Disney, long January 2025 call $47.50 on Nike, and short January 2024 call $155 on Walt Disney. The Motley Fool has a disclosure policy.