Sell in May and go away’ is the classic Wall Street saying because the market has historically entered a softer, slower stretch after April. This would usually make sense, but after the month we just witnessed, does it still apply?
The answer is a yes, but with a nuance. Rarely do we ever saw Wall Street not “shift” capital elsewhere…so what we’re looking for in May is a pullback in the overextended names and a move in the “dormant” names (we’ve been highlighting these names in our watchlists over the past few weeks). The buildup into other sectors takes time…then the move comes suddenly.
The Federal Reserve Shake Up
The Federal Open Market Committee (FOMC) held interest rates for the third consecutive meeting with no change. In the press conference following the decisions, Fed Chair Powell described inflation as “elevated” (largely due to energy costs) and noted that geopolitical risks in the Middle East are contributing to economic uncertainty. What does this mean for us? We’ve highlighted in past analysis that the two main drivers of markets are corporate earnings and interest rates. With rates now expected to remain elevated until late 2026, this could mean we’ll begin to see rotation out of valuation sensitive assets (software, growth tech, small caps, speculative stocks).
The Warsh Effect
Kevin Warsh, the expected incoming Fed Chair, is being viewed as more open to cutting interest rates. His argument centers on AI-driven productivity, the idea that artificial intelligence can help companies produce more with fewer resources, reduce cost pressures, and give the Fed more room to ease without reigniting inflation. Warsh has also been vocal about reducing the balance sheet, which also pressures speculative assets.
Hyper Stocks analysis of this - Warsh’s plan to (possibly) lower interest rates is worth celebrating, however it may not fuel the market the same way it has in the past. While lower rates make borrowing cheaper and make future earnings more attractive, reducing the balance sheet can simultaneously take liquidity out of the system…so the money would be cheaper to borrow, but not necessarily so available. This changes the landscape we’ve been used to and spoiled with over the past decade…where speculative assets and companies with little to no revenue post unfathomable rallies…all because money has been so readily available. With that in mind, we are slowly preparing for the change by leaning into the non-speculative, cash rich, companies as investments and trades.
Key Stock Market Events this Week
- Factory Orders (Mon)
- U.S. Trade Balance (Tue)
- U.S. Productivity (Thu)
- Construction Spending (Thu)
- U.S. Unemployment Report (Fri)
The biggest focus on the economic front is labor market data this week. With tech layoffs sharply rising, investors worry that it can push unemployment higher. Apart from economic data, more earnings are scheduled this week from familiar names like: Palantir, AMD, Arista Networks, Eaton, Pfizer, Shopify, and more. We’ll be highlighting all these key developments as they are released in our daily morning analysis this week for Hyper Stocks Pro members.
SPY Technical Analysis:
SPY reached a high of about 725.00 last week before getting rejected, making that the main resistance in focus for a breakout going forward…however with the index stretched, and all things mentioned above considered, we’re going to be slow to trust a move above 725.00. Tech stocks need to cool off, and since they hold so much weight, they can drag SPY down, even when capital is shifting to other sectors. Our focus going forward is more on individual picks rather than a SPY rally, as it may cool off for a few weeks.
Analysis by Q. Founder, Hyper Stocks
Focus: Equity Analysis | Macro Economics | Swing Strategy
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Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of capital. Always conduct your own research or consult with a licensed financial advisor before making investment decisions.
Hyper Stocks and its contributors may hold positions in some of the securities or assets mentioned above. These positions are subject to change without notice. Any opinions expressed reflect current views at the time of writing and are not guarantees of future performance. Past performance does not guarantee future results.