Sell in May? No Way – AI Bulls are Here to Stay

April capped a massive V-shaped recovery for U.S. stock markets, marking their best monthly performance since November 2020. The S&P 500 (SPX) and the Nasdaq-100 (NDX) hit records on Thursday to close the month, clocking in monthly increases of over 10% and 15%, respectively. The first day of May brought another all-time high closing for both indexes, with the S&P 500’s weekly increase of 0.91% and NDX’s gain of 1.49% marking their fifth consecutive weekly gain – their longest winning streak since 2024.    

The rally was led by investor rotation back into technology shares thanks to continued enthusiasm for AI and related infrastructure, with the Dow Jones Industrial Average (DJIA) lagging its tech-laden peers. The blue-chip benchmark notched no new records last week, but was still up 0.55% in its fourth green week out of five. DJIA’s 7% increase in April was its strongest monthly performance since November 2024.   

Crude oil (CM:CL) prices remained elevated, but investors now appear convinced this is a temporary geopolitical premium rather than a structural shift. As such, markets priced in that higher energy costs wouldn’t derail the broader economy or corporate profits. These assumptions received strong support from the actual data, with Q1 corporate profits smashing expectations and macro reports confirming the resilience of the U.S. economy. Durable goods orders rebounded strongly in March in a sign that business investment and manufacturing demand remained healthy, while the preliminary Q1 GDP growth numbers showed a strong rebound from the fourth quarter, even if the 2% annualized pace was below expectations. April’s ISM manufacturing showed that factory activity continued to expand, and new orders returned to growth after four months in contraction, signaling improving demand momentum and overall resilience in the U.S. manufacturing sector, even amid geopolitical uncertainty and elevated input costs.

One of the key positive macro surprises was the Conference Board Consumer Confidence index coming in well above forecasts and reaching its 2026 high. This diverged sharply from the University of Michigan Consumer Sentiment Index, which hit a record low earlier in the month. The CB index is tilted toward job market and business conditions, while the UoM survey is more focused on household finances and inflation perceptions. This largely explains the divergence, as consumers are feeling the pinch of higher gas prices, while the job market and the corporate sector continue chugging along.  

That strength of the large U.S. businesses came to the forefront again last week, as the earnings season crossed its busiest patch. With nearly two-thirds of the S&P 500 companies having reported, the results are impressive. Both the percentage of positive earnings surprises and their magnitude are well above long-term averages, and if the trend holds, both are on track to hit their highest marks since 2021.

While strength is broad-based – nine of eleven S&P 500 sectors are reporting year-over-year earnings growth, with double-digit expansion at seven of them – outperformance continues to be led by tech companies, spread between Information Technology, Communication Services, and Consumer Discretionary sectors. Alphabet (GOOGL), Meta Platforms (META), and Amazon (AMZN) were the largest contributors to the increase in the overall earnings growth rate for the S&P 500, as AI remains a powerful driver thanks to accelerating adoption and investment.

Looking ahead, there is no sign of slowing on AI infrastructure spending. The large cloud firms – Google, Amazon, Meta, Microsoft (MSFT), and Oracle (ORCL) – are now collectively expected to invest roughly $700 billion this year to support AI‑related buildout, an increase of about 80% from a year ago. Investors may question the monetization timeline of this capex, but it’s already driving chipmakers’ earnings surge, along with “picks and shovels” – companies building data centers, powering them up, supplying networking gear and cooling systems, etc. Ultimately, these massive investments should trickle down through the economy, supporting productivity gains and economic growth.  

As the trading month of May gets into full swing this week, investors are reminded about the “Sell in May and go away” mantra. Historically – with the statistics going back to the 1950s – the May-October period has been the weaker half of the year, with significantly lower average returns than in November-April. However, this seasonal pattern – along with many others – has weakened significantly since the invention of the Internet and amid other changes in the economy, finance, and technology. 2025 was a clear example of the adage failing, as stocks rallied hard through the summer.