Wealth Insights

Stocks Commentary

Stocks: Few Reasons To ‘Sell In May And Go Away’ Following April’s Rally

May 2026

U.S. equity indices rallied sharply in April, with the S&P 500 and S&P Small Cap 600 indices each rising over 10%, while the S&P Midcap 400 tacked on a respectable 7.8%. While stocks across the market cap spectrum turned out gains last month, the ‘top of the market’ was particularly strong, with an equally weighted basket of the largest 20 S&P 500 companies by market capitalization rising 12.1% during April - the best month for mega caps since April of 2020. At the sector level, information technology was far and away the biggest winner in the S&P 500, rising 17.4% as semiconductor stocks led the charge, evidenced by the Philadelphia Semiconductor index jumping 38.4% during the month. Smaller technology stocks also performed well, with the S&P 600 information technology sector rising 23.7% during the month, with semiconductor names leading the charge there as well. This performance is evidence that investors are seeking exposure to what remains a robust AI spending backdrop outside of just the prominent hyperscalers in the ‘Magnificent 7’ cohort. April’s narrow breadth, however, could prove problematic for indices should semiconductors and other AI adjacent plays succumb to profit taking.

Some digestion may be required for the information technology sector at large and for semiconductor stocks specifically after the April rally, but the fundamental underpinning for stocks, i.e. the earnings outlook, is reason enough to remain constructive on U.S. equities. The consensus estimate for 2026 S&P 500 earnings per share (EPS) rose to $332 at the end of April, up from $310 at the end of last year and implying just shy of 20% growth versus the S&P 500’s 2025 EPS. To be sure, the breadth behind these revisions was quite narrow with the energy and information technology sectors driving the lion’s share of the upside, but with manufacturing data improving in recent months and the U.S. economy so far remaining resilient in the face of higher energy prices, positive revisions for more economically sensitive sectors such as financials, industrials, and materials could follow, potentially forcing estimates higher while boosting investor sentiment and risk appetite in the process.

Among other market guideposts, at the sector level, the relative performance of consumer discretionary stocks versus the more defensive consumer staples sector is worth monitoring as a lens into what could lie ahead for energy prices at the U.S. economy. By that measure, market participants aren’t yet overly concerned about a potential downturn in consumer spending on more discretionary items due to higher gas prices as the S&P 500 consumer discretionary sector rallied 11.7% in April and outperformed the consumer staples sector’s relatively paltry 3.1% return. The performance gap between these two sectors in April is encouraging, but this relationship is worth watching into the summer months for signs that elevated gas prices are weighing more heavily on spending as consumers exhaust tax refunds.

Food For Thought: Emerging Market Equity Gains Have Been Highly Correlated With U.S. Technology Stocks. The MSCI Emerging Markets (EM) index generated a 14.6% year-to-date total return through April, easily outperforming the S&P 500 and the MSCI World indices which posted gains of 5.6% and 5.8%, respectively. However, the bulk of the MSCI EM’s gains this year have been driven by just two countries - South Korea and Taiwan, with the former rising 61% and the latter gaining 39%. While those return figures are impressive, it’s even more awe inspiring when one looks back to the end of 2024 as the MSCI South Korea and MSCI Taiwan indices are higher by 225% and 91% since then. Much of the enthusiasm surrounding these two countries has been directly related to their outsized exposure to technology stocks, specifically, dynamic random-access memory (DRAM) semiconductor manufacturing via national champions Samsung, SK Hynix, and Taiwan Semiconductor, with those names mirroring, and in some cases outperforming U.S.-based semiconductor stocks. Whether the memory cycle proves to be more durable and secular in nature rather than cyclical as it has been historically remains to be seen, but relationships between asset classes and indices are more dynamic than is commonly believed, and this shift has broader implications for equity portfolios that shouldn’t be ignored.

Market participants likely don’t think about allocating capital to emerging market stocks as a means to increase exposure to the technology sector and to semiconductor stocks, specifically, but from the start of 2024 through April the MSCI EM index generated an almost identical return to that of the tech-heavy Nasdaq 100 index. Of course, the paths taken by each index to produce those returns have differed, but the end result is largely the same. The correlation between those two indices over the trailing 2 years and 4 months has been just short of 0.85, indicating that approximately 85% of the time the EM index has moved in the same direction as the Nasdaq 100. This correlation is well above what it has been historically, highlighting how the sector makeup of the MSCI EM index and the underlying country components within the index have shifted over time. The information technology sector now constitutes 37% of the MSCI EM index, up from around 27% at the end of 2024, while South Korea and Taiwan accounted for around 30% of the MSCI EM at the end of 2024, they now combine to make up over 43% of the index. Most investors would likely be surprised by how correlated these two indices have been, and this must be considered when deciding to allocate capital to developing markets. We remain constructive on emerging market stocks, but from an asset allocation perspective a neutral position versus our strategic target to this cohort of stocks is warranted after the run-up in the asset class over the prior 16 months. On the other side of that argument, we’re cognizant of the fact the MSCI EM index has built out a multi-year base against the S&P 500, that could be setting up for an extended period of relative outperformance. Disciplined active management in EM will likely prove beneficial from a diversification perspective as these strategies look and act differently than the MSCI EM, and the Nasdaq 100, for that matter.

As of May 14, 2026