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Top ETF Stories of May 2022

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The month of May is, in any case, cursed. Per an old adage, investors should “Sell in May and Go Away.” This May too has not been free from shockwaves thanks to rising rate worries due to a hawkish Fed. The S&P-based (SPY - Free Report) was up 0.64%, the Dow Jones based (DIA - Free Report) advanced 0.7% and the Nasdaq-based (QQQ - Free Report) declined more than 1.7% in the past one month (as of May 27, 2022).

For most part of the month, the indexes were downbeat. Wall Street finally ended its seven-week losing streak last week. The S&P 500 recorded its best week since November 2020. All indexes were up more than 6% each, helping the month of May to end in the positive zone.

Let’s take a look at the key ETF events of the month.

Biggest U.S. Rate Hike Since 2000

The Federal Reserve increased its benchmark interest rate by half a percentage point, matching market expectations. This marked the biggest hike in two decades in the United States. In addition, the central bank drew a program in which it will ultimately lower its bond holdings by $95 billion a month.

Fed Chairman Jerome Powell stressed on the commitment to tame a 40-year high inflation but indicated that raising rates by 75 basis points at a time “is not something the committee is actively considering,” per a CNBC article.

Energy: A Winner

The energy sector has everything that is needed right now — decent valuation, higher dividends and an upbeat operating backdrop. WTI crude ETF United States Oil Fund LP (USO - Free Report) is up more than 50% this year. The oil and gas rally this year has been driven by the Russia-Ukraine war (Russia is energy-rich) which resulted in supply chain issues and rising pent-up demand as global COVID cases are ebbing.

The energy sector recorded a 240.6% earnings expansion in Q1, with 174.1% growth expected in Q2 – the highest in the S&P 500 Index. The “Oracle of Omaha” — Warren Buffett — too is bullish on energy giants Chevron and Occidental.

Some Upbeat Retail Earnings

Several retail earnings also rekindled bullishness among investors. Macy’s (M - Free Report) shares were up 19.3% on May 26 on the lifted guidance for the 2022 profit levels. Dollar Tree (DLTR - Free Report) also rose 21.9% on an earnings beat. Another dollar store Dollar General (DG) also gained 17.5% last week following consumers’ inclination for shopping at dollar stores amid high inflation. Retailer Nordstrom (JWN) jumped 24% last week due to an earnings beat.

Airlines including JetBlue (JBLU) and Southwest (LUV) upped their sales guidance for the current quarter, suggesting upbeat demand for discretionary travel. The Memorial Day weekend and the related uptick in discretionary spending also contributed to the market rally last week.

Upbeat Consumer Evident From Memorial Day Travel  

Memorial Day celebrations this year is at a tricky level, as a great travelling is expected as heightened fears of COVID-19 have eased a bit this year. But high inflation has forced some consumers to skip or cut back on travel. About 33% of consumers expected a huge inflation impact on their Memorial Day celebration this year. About half of all celebrants expected to grill or plan a gathering due to high inflation.

AAA expected 39.2 million people to travel 50 miles or more from home this Memorial Day weekend, marking an increase of 8.3% year over year, bringing travel volumes almost in line with those in 2017, that means at the pre-Covid level.

Also, U.S. retail sales data released in May showed that sales increased 0.9% sequentially in April of 2022, after an upwardly revised 1.4% surge in March and matching market forecasts. The reading showed that American consumers continued to spend despite red-hot inflation.  

Manufacturing in a Dire Strait at Present

The ISM Manufacturing PMI for the United States released in early May showed that the figure declined for the second month in a row to 55.4 in April of 2022 from 57.1 in March and compared to market forecasts of 57.6. It marked the lowest reading since July 2020, as a slowdown was seen in production (53.6 versus 54.5 in March), new orders (53.5 versus 53.8) and employment (50.9 versus 56.3).

High-Dividend ETFs Stood Tall

The benchmark U.S. treasury yield hovered in the range of as high as 2.78% to 3.12% in May on faster Fed rate hikes. Against this backdrop, dividend ETFs acted as great safety bets. Be it a bull or a bear market, investors mostly love dividend-paying stocks. After all, who doesn’t like a steady stream of current income along with capital appreciation?

Even if the stock or the fund falls, higher current income would go a long way in protecting investors’ total returns. After all, high-dividend ETFs provide investors avenues to make up for capital losses, if that happens at all.

ETFs in Focus

Against this backdrop, below we highlight a few ETFs from various areas that were winners in the past one month.

Invesco Dynamic Energy Exploration & Production ETF (PXE) – Up 24%

Invesco S&P SmallCap Materials ETF (PSCM - Free Report) – Up 9.2%

Invesco Dynamic Semiconductors ETF (PSI - Free Report) – Up 8.4%

iShares MSCI Spain ETF (EWP - Free Report) – Up 8.3%

First Trust Dorsey Wright Momentum & Value ETF DVLU – Up 7.8%

ProShares Equities for Rising Rates ETF (EQRR - Free Report) – Up 7.3%

ALPS Clean Energy ETF ACES – Up 7.2%

First Trust Dorsey Wright Dynamic Focus 5 ETF (FVC - Free Report) – Up 6.4%

KraneShares California Carbon Allowance Strategy ETF KCCA – Up 6.4%

Pacer US Cash Cows 100 ETF (COWZ - Free Report) – Up 6.4%