U.S. Stocks Defy "Sell in May" Adage with 60% S&P 500 Components in Uptrend

U.S. stocks have defied the traditional market adage "Sell in May and go away" this year, showing a strong rebound in May despite the market turbulence caused by the Trump administration's tariffs in April. This unexpected recovery has led to speculation that the old saying may no longer hold true. Technical indicators for the U.S. stock market have released positive signals, suggesting a robust recovery that could continue throughout the summer.

Adam Turnquist, a technical strategy expert, highlighted that the breadth of the stock market rally is a key indicator of its sustainability. From a technical perspective, this rebound has already surpassed the short-term "bear market rally" standard. The advance-decline line of the S&P 500 index, which measures the ratio of advancing to declining stocks, has climbed back to a historical high in May after briefly falling to its lowest point since January in April. Turnquist noted that this is one of the most convincing technical signals, indicating that the current uptrend is more likely to be a healthy bull market rather than a fleeting rebound.

Market breadth, a crucial indicator of market health, typically refers to the number of advancing stocks and their distribution across various sectors. At the beginning of 2023, the market's upward trend was primarily driven by a few large technology stocks, resulting in poor market breadth. However, this situation has significantly changed in 2024. Currently, 60% of the S&P 500 components are in an uptrend, a higher proportion than on February 19, when the index hit a new closing high. In contrast, on April 8, this proportion was less than 30%.

Technology stocks have been particularly impressive. In early May, the proportion of technology stocks in an uptrend was less than 10%, but by the previous week, this figure had surged to 88%. Given that the technology sector accounts for more than a third of the S&P 500's total market capitalization, its strong return is significant for the overall market trend. Another rare but closely watched technical indicator, the Zweig Breadth Thrust (ZBT), also appeared at the end of April, further confirming the sustainability of the market rebound. ZBT is a strong bullish signal that typically indicates the market has recovered from a deep correction.

Since then, market breadth has continued to improve. By the end of May, 10 out of the 11 sectors in the S&P 500 had seen gains, and the technology sector had almost fully recovered from its losses since the beginning of the year. The optimistic market sentiment is not limited to the U.S. Robert Sluymer, a technical strategy expert, noted that the German DAX index and the Canadian TSX index also hit new cycle highs in May, indicating that global stock market participation is also increasing in sync. He predicted that the market could continue to rise for the next one to two months until it enters a clear overbought area, at which point a new consolidation period may occur.

Despite the generally positive technical outlook, investors should remain cautious. Sluymer warned that the participation of U.S. small-cap stocks is still relatively low, a weakness that needs to be closely monitored. Additionally, whether the 10-year and 30-year U.S. Treasury yields will break out of their trading range from the past two years and rise further is another risk the market may face. A surge in yields could put pressure on stock market valuations. Callie Cox, chief market strategy officer, noted that investors are still waiting for a clear "economic recession signal," and the U.S. employment market data to be released by the Labor Department this week could be a key turning point. She pointed out that it is still unclear whether "that moment" will actually arrive, but if the data shows continued weakness in the labor market, the stock market could face a short-term shock.