From Dung Pile to Dominance: How May Got Its Mojo Back

Magnificent May indeed—but it came with caveats. NVIDIA, confidence, and tariff chaos defined the month.

KEY TAKEAWAYS

• Mag-7 stocks gained 14% in May, recovering nearly all YTD losses.
• NVIDIA and Tesla led the way; Apple underperformed.
• Nasdaq bounced out of a bear market early in May.
• NVIDIA’s earnings crushed expectations despite export restrictions.
• Tariff delays and policy headlines drove most of the market action.

MY HOT TAKES

• Markets are macro-driven right now—earnings matter less than policy… for now.
• NVIDIA’s AI dominance shows primacy and antifragility.
• Tariff delays have become reliable rally catalysts.
• Consumer confidence is more responsive to trade policy than rates.
• Even bullish AI sentiment can’t escape political volatility.
• You can quote me: “Despite all the natural and unnatural roadblocks to success, NVIDIA not only succeeded, but exceeded.”

Short but sweet. Well, it is the last trading day of the week and of the month. It tops off a short week that was chock-full of activity in the markets. The same can be said of the month. I joined Dom Chu on CNBC this morning and he characterized it as “magnificent May,” and indeed it was… or is, for the next few hours at least

If we look at 2024 sweetheart group Mag-7, the gaggle logged a 14% gain in May through yesterday. Unimpressed by 14%? Remember that the Mag-7 was down by some -15.5% for the year at the end of last month. You would be astute to have recognized that most of the year’s losses were erased through last night’s close.

Of that team of 7 horses, which do you think did most of the pulling this month? I am sure that you guessed NVIDIA, and you would be correct. Second place for most ground covered was Tesla. Apple must have thrown a shoe, as it slowed the group with a month-to-date decline. Still, it has been a win for the Mag-7 and the broader markets. 

I can say this with confidence as all the Mag-7 stocks are mostly within the top ten largest weighted stocks in the S&P 500 (“mostly” because TSLA pops in and out of slot 10). In fact, those seven stocks represent around 34% of the weighting of the S&P. You could say they are highly influential. 😉 Here is a fact that will blow your mind: the Mag-7 represents 50% of the Nasdaq Composite, everyone’s second favorite index to quote… well, maybe third, because for some reason everyone loves to quote the Dow. That said, if you like growth stocks–and I know you do–the Nasdaq is your playground.

Both the Nasdaq and the S&P are just around breakeven for the year, though the former had one heck of a journey. The Nasdaq Composite entered a technical bear market in early April, declining by more than -20% from its February high. A day later, the index shaved off even more to log a -25% total loss from its February high. Not sure if you recall that day, but there was very little oxygen in the market on that day. 😦 The walls started to close in and that chill began to run up your spine, vision blurred. Was this the end that all the naysayers promised? [cue dramatic music here]

If you threw the towel in on that day, as many had, you might have missed the neck-breaking rise that followed. Events in May propelled the index out of bear territory by the second trading day this month. To be fair to April, a few of the Mag-7 reported earnings in the last week of the month setting up the markets for success.

As you might have figured out by now, the markets were influenced far more by macro factors than individual company news in the past few months. The market’s performance has been dictated by the ups and downs of the administration's efforts to level the playing field in global trade. The use of draconian tariffs as bargaining chips has caused even the best of stocks a bit of… let’s call it gastric discomfort. The same promise of big tariffs that knocked stocks off their perches were the same ones that lifted them off the dung pile when they were delayed. Throw some trade negotiation success stories on top of that and you get a nice recovery.

This past week has been an embodiment of the market forces that dictated May’s trade. Let’s have a look. It is clear that tariffs are still in control of market sentiment. You may have forgotten, but we were off on Monday to celebrate Memorial Day–ya, it’s been that kind of week. Tuesday’s session was greeted with the President announcing delays on his prior week’s promise to slap the EU with a 50% tariff. Delay 👉 rally. Markets have been responding more rationally to the contours of the administration’s trade campaign. Keep that thought for a moment.

Ok, back to another theme driving markets. Artificial Intelligence and all the companies in the AI ecosystem; you know the ones, at least 5 of the Mag-7 are in it with one other that should be in it (Apple 🙍). Well, the leader of that pack is none other than NVIDIA, which is at the center of the AI universe. NVIDIA displays primacy, my contribution on “word of the day” on CNBC this morning. NVIDIA not only dominates the AI ecosystem, but it also defines its very existence… and its success. Would NVIDIA’s earnings announcement set a course for success, or failure? We learned a few weeks back that the company would be taking a $5 billion writedown associated with the administration restricting sales of its H20 chips to China. The restrictions would also lead to the disappearance of almost $10 billion in sales. For any normal company this would spell sure disaster. Would the company be able to even meet analysts’ bullish estimates, given restrictions and tariffs? Also, could the company continue to grow revenues at the high double-digit growth it has enjoyed in past quarters? Surely this was a setup for some potential pain. On Wednesday, that tension around what would happen with NVIDIA after the close was palpable.

Let’s take a step back. We know that NVIDIA drives the AI ecosystem which dominates the Mag-7… which also has a… well, HUGE influence on both the S&P 500 and the Nasdaq. Step back once again (be patient, we will be stepping forward big time in about 2 minutes). Back on May 13th, I talked to Market Watch’s Laila Maidan, one of my favorite journalists, and we discussed the significance of the Mag-7’s journey toward re-trending after being decimated by the tariff tantrum (you can find a link to the article here). I asserted that for the broader market to get back to its former bullish-self, the Mag-7 would have to first lead the way. All that means that NVIDIA would have the final say this past Wednesday after the closing bell.  What did it say? In a nutshell, AI is still huge. Not just companies, but countries are investing in the AI ecosystem. Sales and earnings growth is still through the roof. Oh, and those trade restrictions and tariffs? No problem. Despite all the natural and unnatural (😉) roadblocks to success, NVIDIA not only succeeded, but exceeded. It showed us that NVIDIA is at the leading edge of a movement that is antifragile. 

On that very same day that investors were shivering in their boots awaiting NVIDIA’s results, The Conference Board released its monthly Consumer Confidence number. My longtime followers are well aware of my obsession with confidence. Malek says “confident consumers consume!” In recent months, confidence has been waning, which was causing me to shiver in my boots. Would the recent declines in confidence lead to a decrease in consumption and possible stagflation? We don’t know yet, but declining confidence can’t be a good thing. BUT IT DIDN’T DECLINE in this last reading. It instead shot up far beyond its prior reading and economists’ estimates. OMG! Consumers are regaining confidence! Why? Because of tariff delays. Uh oh, there it is again.

Now, we can finally step all the way back in. Yesterday morning, we learned that two courts ruled that the President’s tariffs were unlawful. The prospect for all those “liberation day” tariffs to go away sent markets ablaze with optimism. 🔥🔥This optimism dominated market action, and it even overshadowed the positive news from NVIDIA from the prior night’s announcement. Underscoring tariff news dominance, news that a judge granted the administration a temporary stay during the appeals process sent stocks tumbling. Though the index managed to claw its way off the lows and still close in the green, on any other day, the NVIDIA news would likely have caused significantly more gains.

At the end of the day, we learned that AI is still alive, in fact, antifragile. NVIDIA is a big part of the Mag-7’s success and even the broader markets due to its primacy. However, the ongoing tariff battle still overshadows and dominates the markets. That should not come as a surprise as we close out this “Magnificent May.”

YESTERDAY’S MARKETS

Stocks gained yesterday on news that 2 courts ruled that the administration's tariffs were illegal. Later in the day, the administration got a stay allowing tariffs to stay in place while appeals were being conducted. Stocks gave up some earlier gains but still closed in the green. NVIDIA cannot be beat according to the prior evening’s announcement; this was positive for stocks but was lost in the fog of trade news.

NEXT UP

• Personal Income (April) jumped by 0.8%. topping estimates and last month’s 0.7% gain.
• Personal Spending (April) came in as expected showing a 0.2% gain, which was lower than last month’s reported 0.7% gain.
• PCE Price Index (April) slowed to 2.1%, less than estimates and the prior period’s 2.3% reading. Inflation? Does it even still exist?
• Fed speakers today: Mary Daly and Austan Goolsbee.
• Next week: PMIs, JOLTS Job Openings, ADP Employment Change, Factory Orders, and monthly employment figures. It doesn't seem like much, but there is plenty on the calendar which will impact your investing success… or lack thereof, so drop back in on Monday for your weekly calendars in order to minimize the probability of the latter. 

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