May was a tough month for the stock market, but investors can learn a lot from the main themes of the past month. If we understand the forces that have influenced stocks over the past month, then we can make informed predictions about where the market will go. Here are some of the top stocks and industries that moved the market last month, and they illustrate important trends to come.
Shares of Instantaneous (INSTANTANEOUS 4.55%) fell 50% in May. The social media stock got off to a bad start along with other growth stocks, but things fell further after CEO Evan Spiegel sent a pessimistic note to employees about Snap’s deteriorating full-year outlook. Just weeks after the company reported disappointing first-quarter results, Spiegel warned employees it was in danger of missing its revenue and profit forecast. Faced with difficult growth, the company abandons its hiring plans. Lower expectations were attributed to a poor macroeconomic environment.
Growth stocks bear the brunt of the market decline this year. Not only are equities reflecting the bearish outlook for companies, but investors’ lower risk tolerance is driving down valuations. This has a cumulative effect that hits the stock price of companies like Snap. The stock’s forward P/E (price/earnings) fell to 65, and its price-to-sales ratio fell to 5.2.
Snap has a tough road ahead for the next few months. However, the social media company’s long-term outlook hasn’t changed much. The new valuation could reflect a simple return to rational expectations or represent a significant discount. Either way, the stock price is much more attractive than it was six months ago for investors who like the company. There could easily be more room to slide down, but the balance between risk and reward has clearly shifted. It was a common theme across all growth stocks in the tech sector.
Shares of Coinbase (PIECE OF MONEY 5.97%) fell 30% in May after a poorly received earnings report. The company’s quarterly revenue fell 27% from a year earlier, and that revenue is about 20% below Wall Street expectations. Coinbase’s financial results are impacted by falling cryptocurrency prices as well as lower trading volumes. Bitcoin fell 20% in May and investor interest waned after last year’s fervor.
Coinbase stock is simultaneously battling downward pressure on cryptocurrencies and growth stocks as riskier assets fall out of favor in capital markets. This is likely to continue as interest rates rise, so Coinbase stock is not off the hook just yet, despite falling around 70% from a year ago.
May was a particularly bad month for cybersecurity stocks. Industry Leaders Cloudy (NYSE:NET), Okta, Z-scaleand CrowdStrike all moved closely together throughout the month, and they all fell 20-35%.
Cloudflare announced better-than-expected results on May 5. She saw her sales increase by 54%, achieved a phenomenal net dollar retention of 127%, and increased her revenue forecast for the full year. Despite this, Cloudflare saw a selloff that coincided with other growth stocks, and the other cybersecurity stocks fell along with it.
Cybersecurity stocks are a perfect illustration of the technology’s growth over the past two years. The pandemic bull market sent high-potential stocks to incredibly high valuations, and those prices have since fallen dramatically. The long-term growth potential is still exceptionally high for this industry, but prices are now much more attractive for investors.
Energy stocks were the saving grace of the market last month. May’s list of big winners is dominated by stocks in this sector, along with a handful of stocks with stable dividends. The Energy Select Sector SPDR ETF was up 16%. Crude oil continued to climb above $100 a barrel due to supply constraints in domestic and international markets.
Even after last month’s strong performance, the energy sector still represents only around 4% of the S&P500. Crude Oil has continued to climb so far in June, and looks unlikely to drop drastically in the near term. That might not be enough to continue propelling energy stocks higher, but there should be decent support for the sector. Still, that might not be enough to offset the problems in other industries in the major indexes.