June Market Commentary

Living in the limelight, the universal dream
For those who wish to seem
For those who wish to be must put aside the alienation
Get on with the fascination
The real relation, the underlying theme

Rush
Limelight

When it comes to investing in the latest themes, there are different schools of thought behind what makes investors successful in the long term. One school of thought focuses on identifying what will be the next big thing and building up sizeable positions in the first movers. This can be risky, but the payoffs can be tremendous. Another approach moves slower, waiting to determine how sustainable the big thing will be and whether the first movers will prove to be long term winners or will there be other stocks that capture most of the gains. This approach may miss some of the early moonshots, but it will likely give investors a smoother ride. Investment history is filled with successes from each of these schools of thought. Think back to the dawn of the internet in the 1990s. First mover investors found Netscape, Pets.com and Cisco while the slower to invest may have found early Amazon, Netflix, and Yahoo. Fortunately, investors can spread their bets across both schools of thought and win early and later if they get the theme right.

When the AI theme started to look like the next big thing, investors quickly focused on the companies that were most directly involved and would be the early winners. Before AI became the theme, few had ever heard of “hyperscalers”. But these were among the first big movers in the public markets. The theme began to expand and pulled in more companies that were seen as direct and indirect participants in the massive AI buildout. Recently, what has been interesting to see has been the rediscovering of some of the older and maybe forgotten technology companies that offer picks and shovels that are required to expand and maintain the required AI infrastructure. Companies such as Intel and Cisco, which a generation ago were the big names in tech but fell off the radar of most investors, are having a resurgence in the next wave of the AI theme. Cisco’s stock rose more than 30% in May and Intel was up more than 20%. Another “later to the party” older tech company is Micron, which is the most recent stock to capture the AI limelight, rising more than 85% in May and nearly 700% over the last 12 months. In a world of tight supply and limited competition, it pays to be one of the few specialized chip makers still around. Similar to the late 1990s internet revolution, today’s AI evolution is bringing together old and new technologies to reshape business models and industries.

The strong rally in April continued into May as investors rode the AI growth theme and focused on strong Q1 earnings across most sectors. In the U.S., the S&P 500 was up 5%, the Russell 2000 was up more than 4% and the tech-heavy NASDAQ 100 rose more than 10%. Growth outperformed value and large outperformed small as the market narrowed further. Non-U.S. stocks lagged the U.S. though they sustained their April momentum. MSCI EAFE returned 3% while MSCI Emerging Markets rose 10%, driven by South Korea’s 30% rally in May. The bond market was largely flat for the month, with the Bloomberg Agg index returning 0.3%. U.S. interest rates rose during the middle of the month and held steady into the month end. Investors focused on higher inflation levels and lowered their expectations for rate cuts.

Here are observations on what occurred across the investment markets in May:

Broad Market Performance¹

• U.S. equity markets moved higher in May with the S&P up 5% and the Russell 2000 rising 4%. Reflecting the AI theme, the tech-heavy NASDAQ 100 rose more than 10%.

• Growth stocks outperformed value, aided by the big move in Technology stocks. Large cap stocks outperformed small caps by a modest amount, a reversal from April’s small cap rally.

International and Global Equities³

• International developed markets also posted positive returns in May as energy prices fell and took some pressure off local economies. MSCI EAFE gained 3% for the month.

• Emerging market stocks were the best performing region, returning 10%. While China continues to struggle, declining another -3%, South Korean stocks rose 30% on continued AI hardware demand.

Fixed Income Markets⁴

• U.S. bond market returns once again were flat to slightly positive in May, with the carry offsetting the negative impact of the small rise in interest rates across the curve.

Specialty Markets⁵

• Oil prices fell more than 16%, falling sharply in the second half of the month. REITs cooled off after rallying in April, hurt by rising interest rates.

Sectors⁶

• Information Technology (+16%) was the dominant sector in May, outperforming the next highest sector return by 13%. Only 3 of 11 sectors posted positive returns, indicating the market has narrowed once again.

Looking back at how the AI theme has dominated investment markets for the last 3 years, it does not appear to have mattered which school of thought investors adhered to. If the “next big thing” investors identified the early winners and rode that wave, their portfolios have benefited handsomely but with some volatility. The investors who were willing to miss some of the early gains while evaluating what companies may prove to be more sustained winners have also captured big gains from many second wave winners. While it may have been easy for investors from both schools to have forgotten about the old tech names such as Intel or Cisco, it paid off for those who “put aside the alienation” and “got on with the fascination, the real relation, the underlying theme.”

^1-6 All data referenced in the table and comments supplied by Morningstar as of 05-31-2026

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