Stock Market Outlook for May: Earnings Season, Uber IPO, Global Economy Watch
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"People’s expectations for the next few quarters have to be constrained,” says Michael Antonelli. “We don’t want to see people get too enthusiastic. That’s what scares a trader."

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Welcome to our monthly stock market outlook, where we preview what the pros will be monitoring and what everyday investors should know. Staying informed about what’s happening in the market can make you a smarter investor and help inform your long-term strategy.

It’s been the best start to the year for U.S. stocks in decades, with the S&P 500 notching new record highs in recent weeks.

But experts caution you should start to temper your expectations for what the rest of the year will bring.

The red-hot rally for the S&P 500—which is up more than 17% so far this year—is probably due for a cooling off period at some point. From the last half of the busy corporate earnings period to the debut of Uber to economic reports from abroad, here’s what investors will be watching in May:

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Earnings are ‘the most immediate issue’ for the market

Investors are midway through the multiweek period known as earnings season, when publicly traded companies release their results—in this case, for the first quarter of 2019. Seeing how companies performed is “the most immediate issue for the market,” says David Joy, chief market strategist at Ameriprise. “Earnings are turning out to be slightly better than expected, so we’ll see if that trend holds.”

About half the companies in the S&P 500 have reported earnings so far. They’ve generally been better than analyst estimates, which helped the index set new highs last week and this week. There are plenty of big companies investors still are waiting to hear from, like Walmart, Home Depot, Deere, and Dow Chemical.

Still, investors have punished shares of companies that came up short on their results, Joy adds. One such example? 3M, which suffered its biggest decline in more than 30 years, and still is down more than 13% since reporting results.

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But investors want assurance the global economy is improving

Fears about another impending U.S. recession have cooled since late last year. That’s in no small part because reports show things are OK for now. The economy grew 3.2% in the first quarter, which was better than expected and the best start to a year in four years.

Investors now feel “a little more optimistic” about economic growth in the second quarter and beyond, especially because the U.S. housing market is holding up and employers are continuing to add workers to their payrolls, says Michael Antonelli, a market strategist at Baird. “The best-case scenario is more of the same in the U.S.,” he says, “and more of the same is decent.”

But investors want to know whether the worst of the global slowdown is over. Much of that depends on China, the world’s second-largest economy. Growth there has yet to show solid signs of turning a corner, Joy says.

“Without a reacceleration in China’s economy, the rest of the global economy will struggle,” he says.

Speaking of China, investors have waited months for a trade deal between the U.S. and China. The status of a deal has been “in the same vein” as Brexit (Britain’s planned exit from the European Union)—in other words, it’s been pushed back numerous times, says Kevin Philip, managing director at Bel Air Investment Advisors.

This week, a leader in the Trump administration promised some resolution “one way or the other” on trade talks within the next two weeks. The details of a deal will matter, but at the very least it would help with investor sentiment to “have that issue put to bed,” Joy says.

Uber IPO is arriving in May

This year has been a busy one with some well-known companies doing initial public offerings—that is, offering shares to potential investors for the first time on an exchange. Arriving this month? Uber.

Following competitor Lyft’s less-than-stellar IPO (the stock is down more than 23% since its late March debut), there’s bound to be a lot of interest on and off Wall Street about how Uber will fare when it arrives on the stock exchange midmonth. And Philip says many of his younger clients also are very interested in Beyond Meat, which makes plant-based meat substitutes. That IPO is expected this week.

But pros caution that people need to keep their expectations in check, both for these IPOs and for the broader market.

The stock market hasn’t been particularly bumpy lately—there have been very few daily moves up or down of at least 1%. That may be “lulling investors into complacency,” Joy says. But that market calm could change at any time, he adds.

An old saying on Wall Street—’sell in May and go away’—could also be something to watch. This maxim suggests investors sell stocks in May and buy again after September. That’s because these months historically aren’t as busy with trade activity, often see the weakest gains (or even losses), and may be more turbulent for the market.

Given that the April-to-September stretch is historically a period of “malaise” for the market, Antonelli says investors could start picking at the market, especially after its “staggering” rally.

For Antonelli, sussing out where the market is headed from here means examining its inner workings, like how many stocks are marking new record highs or which of the major sectors (like technology or health care) are doing better than others. He also doesn’t want to see investors getting too optimistic.

“People’s expectations for the next few quarters have to be constrained,” Antonelli says. “We don’t want to see people get too enthusiastic. That’s what scares a trader.”

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