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U.S. stock indices ended May in favorable territory as investors found an equilibrium between persistent inflation concerns and anxious corporate earnings. The S&P 500 advanced (+6.29%), led by consumer discretionary and information technology stocks and showed signs of a recovery from its February downward spiral. Volatility rose in April and continued throughout May as investors anxiously awaited inflation data due to the shift in U.S. trade policy. Both the core personal consumption expenditures (PCE) index and core consumer price index (CPI) rose 0.1% despite a marginal increase in inflation data, the Federal Reserve maintained a cautious tone and hinted at potential rate cuts in the future. The combined effects of neutral inflation data and favorable earnings from mega-cap technology companies propelled the U.S. market into greener pastures. But as valuations stretch and companies’ forward guidance quiver, investors are starting to question: Is the grass greener on the other side?

Despite an impressive performance by information technology, other sectors also showed signs of life: Industrials ETFs net flows hovered around $1.94 billion, while mutual funds net flow was $146 million. Growth & Income ETF’s net flows are approximately $8.5 billion, while their mutual fund counterpart lost approximately $5.3 billion. Does this shift indicate the start of a meaningful rotation, or are investors taking a tactical shift in the short term due to macroeconomic uncertainty? This remains a critical question going into the summer months.

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