S&P 500 ETFs Log Best May in 30+ Yrs on AI, Large-Cap Safety

The S&P 500 just posted its strongest May performance in more than three decades, largely driven by a surge in the "Magnificent Seven" tech stocks: Apple AAPL, Alphabet (GOOGL, GOOG), Microsoft MSFT, Amazon AMZN, Meta META, Tesla TSLA, and NVIDIA NVDA (read: 4 ETF Areas Up At Least 25% in May).

The SPDR S&P 500 ETF Trust SPY gained 5.2% over the past month (as of Jun 2, 2025) while the Big-Tech heavy Nasdaq-100 ETF Invesco QQQ Trust, Series 1 QQQ advanced 7.7%. While easing trade tensions was the key behind the stock outperformance, Big Tech benefited the most from easing trade tensions.

Easing Trade Tensions Provides Relief

Following the initial tariff-induced downturn, signs of trade de-escalation began to emerge. The United States temporarily reduced tariffs on Chinese goods from 145% to 30%, while China responded by lowering its retaliatory duties on U.S. imports from 125% to 10%. This 90-day reduction period has helped ease investor concerns.

Additionally, President Trump postponed a 50% tariff hike on EU goods, delaying implementation from June 1 to July 9. This move accelerated trade negotiations with European partners.

Tech Titans Dominate Market Gains

The seven mega-cap companies accounted for 62% of the S&P 500’s 6.2% gain in May. NVIDIA and Tesla led the charge with monthly gains exceeding 20%. Six out of the seven stocks outperformed the broader index, with Apple being the sole underperformer.

Nicholas Colas, co-founder of DataTrek Research, noted that the resurgence of Big Tech is a sign the market has regained its confidence, as quoted on Yahoo Finance.

Strong Mag-7 Earnings Drive Growth

A major reason behind the rally is strong earnings growth from Big Tech. In Q1, the Magnificent Seven posted a combined 27.7% earnings increase year-over-year, compared to 9.4% growth among the other 493 S&P 500 companies, according to FactSet’s senior earnings analyst John Butters.

Additionally, these companies outpaced analyst expectations, beating estimates by 11.7% on average—well above the 4.6% beat from the rest of the index, as quoted on Yahoo Finance.

Overall, total Q1 earnings for the 477 S&P 500 members that have reported results are up +11.4% from the same period last year on +4.4% higher revenues, with 74.2% beating EPS estimates and 62.9% beating revenue estimates, per Earnings Trend issued on May 28, 2025.

Outperformance Reflects Investor Strategy

Citi US equity strategist Drew Pettit highlighted that these earnings surprises explain the group’s recent outperformance, as quoted on Yahoo Finance. Over the past month, the Roundhill Magnificent Seven ETF MAGS rose approximately 11%, nearly double the S&P 500’s return.

After all, it was Big Tech that triggered the latest market downturn earlier this year, so it's not surprising to see these stocks bouncing back the most.

Large-Caps Favored in Yield-Sensitive Environment

Another factor boosting Big Tech is investor preference for large-cap stocks amid rising bond yields. With the 30-year Treasury yield nearing highs not seen since the financial crisis, large-caps have become a safer bet.

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This article originally published on Zacks Investment Research (zacks.com).

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