By Keith Gangl
Wall Street has long followed the adage “Sell in May and go away,” but investors who heeded that advice this year would have missed a powerful rally.
The stock market marched steadily higher throughout May, rewarding those who stayed the course. The S&P 500 gained 5.25% for the month, pushing year-to-date performance to 11.27%[1] and pushing the index to new all-time highs.
Several factors drove the market’s strength in May: robust corporate earnings growth, surging artificial intelligence (AI) demand, and a meaningful decline in oil prices. While AI infrastructure buildout and earnings growth have been tailwinds for the past couple of years, both accelerated notably during the month.
The technology sector, home to many of the companies that enable and benefit from AI, was a standout performer. The Technology Select Sector SPDR Fund (XLK) hit a 52-week high and surged over 20%[2] for the month. Investor enthusiasm for AI-linked stocks was on full display, with semiconductor companies continuing their rally.
Software stocks also joined the party, as the iShares Expanded Tech-Software ETF (IGV) rose 21%[3], signaling that the AI trade is broadening beyond hardware and chips.
Oil prices also provided a tailwind. West Texas Intermediate (WTI) crude, a key benchmark for U.S. oil prices, fell 17% in May, its steepest monthly decline since April 2025[4]. The drop in oil prices was largely driven by growing hopes of a U.S.-Iran deal, which eased fears of supply disruption.
To be sure, the situation remains a wildcard: the prospect of a deal or renewed hostilities can shift daily, making outcomes difficult to predict. But for May at least, lower oil prices acted as a meaningful tailwind. Because oil functions effectively as a tax on consumers, its decline is closely watched by households and investors alike, and falling prices translate directly to improved consumer purchasing power and corporate margins.
At Gradient Investments, we believe that over the long term, corporate earnings are the primary engine of stock market returns, and the first quarter of 2026 delivered exceptional results. Year-over-year earnings growth for S&P 500 companies was 28.6%[5], a pace not seen since the fourth quarter of 2021.
Looking ahead, if this momentum holds, full-year 2026 earnings growth could exceed 22%, a figure that would represent a powerful and sustained tailwind for equities.
May 2026 was a reminder that market adages, however time-honored, are no substitute for careful analysis. The confluence of record-breaking earnings growth, broadening AI investment, and relief at the oil pump created a favorable environment that rewarded investors who remained engaged.
While risks remain — from geopolitical uncertainty in the Middle East to the ever-present possibility of policy surprises — the underlying fundamentals appear solid. Strong earnings growth, expanding technology adoption, and easing input costs form a constructive backdrop for the months ahead.
For long-term investors, May’s performance reinforces a timeless principle: staying invested and focusing on fundamentals is often the most reliable path to building wealth.
[2] Stocks Close at Record Highs
[3] Software Stocks
[4] Oil Prices
[5] S&P 500 Earnings