Forget 'Sell in May': 5 Factors Why Wall Street ETFs Could Rally Ahead

Wall Street has seen a strong start to May 2025, going against the old adage, “sell in May and go away,” after a subdued April. In April, the S&P 500 lost 1.8%, the Dow Jones retreated 3.7%, the Nasdaq Composite was off 0.9%, and the Russell 2000 plunged about 4%.

However, U.S. stocks are showing signs of a recovery to start May, marking a significant comeback for major indexes, led by a strong jobs report and a possible breakthrough in U.S.-China trade negotiations.

Longest S&P 500 Winning Streak Since 2004

The S&P 500 jumped nearly 1.5% on May 3, 2025, surpassing its April 2 closing level — referred to by President Trump as “Liberation Day,” when sweeping tariffs were announced. The S&P 500 marked its longest winning streak since November 2004, closing higher for multiple sessions.

The Dow Jones Industrial Average gained 1.4% on May 3, logging its ninth consecutive winning day. The tech-focused Nasdaq Composite also climbed roughly 1.5% on Friday. We expect this to be the start of a market recovery, which we can see throughout this month.

Weekly Market Performance

Friday’s Wall Street rally capped off a strong week for U.S. equities. The Dow rose 3%, the S&P 500 added nearly 3%, and the Nasdaq outperformed with a 3.4% gain. Optimism over Big Tech earnings and signs of progress in trade discussions were key drivers of the weekly surge.

Below, we highlight a few factors that suggest May could be a charged-up month for Wall Street.

Recent History Didn’t Favor the “Sell in May” Adage

Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, in a recent interview with Yahoo Finance. “Historically, if we go back over the past ten years, 'sell in May' hasn't actually worked too well.”

The phrase "Sell in May and go away" began in London, where traders would exit markets in summer and return after the Saint Leger horse race in September — a strategy that became popular in the United States from 1960 to 1987.

However, after the 1987 market crash, staying invested through summer generally became more profitable. While the S&P 500 has averaged just 1.8% returns from May to October since 1950, it has still posted gains 65% of the time, challenging the need for seasonal exits, per LPL Financial data, quoted on Yahoo Finance.

April Job Report Beats Expectations

Markets were buoyed by a stronger-than-expected U.S. jobs report. Nonfarm payrolls rose by 177,000 in April, exceeding economists’ expectations of 138,000. The unemployment rate remained steady at 4.2%, signaling continued strength in the labor market despite recent volatility tied to tariff fears.

Hopes Rise for U.S.-China Trade Talks

Investor optimism was further fueled by news from Beijing. China’s commerce ministry indicated openness to talks, saying the "door is open" for negotiations if the United States agrees to scale back reciprocal tariffs. This development suggested a possible thaw in trade tensions that had rattled markets in April.

Tech Giants React to Tariff Pressures

Despite strong earnings, some tech giants felt the pressure of trade uncertainty. Apple AAPL reported a $900 million tariff headwind this quarter and cut its share buyback program by $10 billion, causing its stock to dip. Amazon AMZN posted solid earnings but offered cautious guidance, citing tariffs and trade policy as key concerns.

While such concerns may instigate the administration to take a softer stance on trade deals, some tech giants came up with upbeat outlooks even in this strained scenario.Strong outlook from software giant Microsoft MSFT and Facebook parent Meta Platforms META spread strong optimism in the tech sector.

Meta boosted AI Spending as advertising outlook appeared “healthy” despite tariff concerns.  Meta shares posted its strongest week since February 2024. Microsoft too expects capital expenditures to rise from here as the company continues to expand data center capacity as the cloud and AI can benefit every business’s growth.  

Microsoft shares soared over 11% last week, marking its best performance since March 2023.Meanwhile, Alphabet GOOGL also plans to invest $75 billion in capital expenditures in 2025 as it continues to expand on its artificial intelligence strategy.The figure beat the $58.84 billion that Wall Street expected, according to FactSet, as quoted on CNBC.

Trump's April Tariff Revenues Surge

Tariffs under President Trump had a tangible impact last month, with the U.S. government collecting over $17.4 billion in Customs and Certain Excise Taxes in April. That figure nearly doubled March’s total of $9.6 billion, marking a sharp rise and far surpassing the smaller revenue spikes observed earlier in Trump’s presidency. The biggest tariffs — 10% duties on nearly every country in the world — took effect on April 5.

While this can be a short-term boost, a decent increase in tariff revenues is probably guaranteed at this level. Plus, Trump’s believe that “the tariffs will be enough to cut all of the income tax” could be a long-term benefit for corporations and consumers.

ETFs to Buy

Against this backdrop, investors can buy a few top-ranked exchange-traded funds (ETFs) that have higher chances of outperforming amid the new-found optimism.

iShares Expanded Tech-Software Sector ETF IGV – Up 14.8% Past Month (as of May 3, 2025)

This is a high-momentum fund and should benefit from the ongoing AI boom. The ETF has a Zacks Rank #2 (Buy).

The underlying S&P North American Expanded Technology Software Index comprises of North American equities in the software industry and select North American equities from interactive home entertainment and interactive media and services industries.

Themes Cloud Computing ETF CLOD – Up 13.4% Past Month (as of May 3, 2025)

Could computing is another area that is well-positioned to gain ahead. The ETF has a Zacks Rank #2.

The underlying Solactive Cloud Computing Index comprises of companies that have business operations in the field of cloud computing.

First Trust Dow Jones Internet Index Fund FDN – Up 12.6% Past Month (as of May 3, 2025)

The underlying Dow Jones Internet Composite Index includes only companies whose primary focus is Internet-related. The ETF has a Zacks Rank #1 (Strong Buy).

SPDR S&P Aerospace & Defense ETF XAR – Up 12.9% Past Month (as of May 3, 2025)

Most global powers are enhancing defense spending due to rising geopolitical tensions (read: Aerospace & Defense ETFs in Focus Amid Earnings and Spending Surge).

The underlying S&P Aerospace & Defense Select Industry Index represents the aerospace & defense sub-industry portion of the S&P Total Stock Market Index. The ETF has a Zacks Rank #2.

Vanguard S&P 500 ETF VOO – Up 5.4% Past Month (as of May 3, 2025)

Although the S&P 500 has been subdued over the past month, we can expect a rally in May. Moreover, the fund is diversified in nature, which helps it offer investors a defensive approach. 

The underlying S&P 500 Index measures the performance of the large-capitalization sector of the U.S. equity market. The ETF has a Zacks Rank #1.

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