May was a relatively calm month when compared to the recent past. The S&P 500 gained .43% after being in a very narrow trading range between 4061 and 4205. Once again mega cap technology stole the show, with the QQQ rallying 9.1% for the month. MOAT advanced 1.6%. Small caps/IWM were flat,
Value/RPV declined 5.3%, MSCI all world ex-US shed 3.6%, RSP/Equal weight declined 3% and bonds lost 1.4%.

TWG models outperformed their benchmark, with growth/moderate/conservative up .6%, .25% and .10% respectively versus their respective benchmark declines of -.47%, -.56% and -.64%. Bonds and non- U.S. stocks were weak, as were most constituents in the S&P 500 as evident by RSP/equal weight declines relative to mega cap tech gains. The market continues to take small steps forward primarily on the shoulders of technology and AI related stocks.

WHAT MOVED THE MARKET
A big part of the gains continue to be from a small handful of the largest tech companies, namely NVDA (up 159% YTD), APPL (36%), META (120%), MSFT (37%), AMZN (44%), GOOG (39%) and TSLA (66%). Excluding these top players, the “market” would be slightly negative YTD.We believe there is perceived safety in these leaders given their sizable free cash flow and overall sense of price stability. The narrowness of the market is a bit concerning, but can very well lift sentiment overall, which will likely help the laggards catch a bid if economic data continues to show a resilient ecnomy.

Inflation, while down year over year, is still much higher than the Fed would desire, but the declining trend continues. The debt ceiling deadline kept the market somewhat in check this month, though we feel the concerns stemming from the US potentially defaulting on their debt was benign. Historically, the U.S. government has always paid their bills and increased the debt limit to stave off a technical default, and we felt this time was no different. The market certainly did not get bent out of shape over the possibility that Congress would not get the job done, which was a welcome relieve from stressing about this possibility over the months prior.

1Q23 earnings season is winding down, with some 97% of companies having reported. Aggregate earnings were down 2.1% from 1Q2022. While we are in an earnings recession, as defined by two
consecutive quarters of negative earnings growth, the declines are much less than the -6.8% expected. As mentioned in the past, expectations drive a lot of market sentiment, and the fact that earnings were not as bad as expected suports a gentle sigh of relief. On the heals of NVDA’s blow out quarter, the S&P and QQQ rallied 2% and 5.5% respectively in the final
week of May, lifting the SP above the 4,200 level which has proved to be resistance since last summer. This 4,200 level also was the February 2, 2023 intra day high, so maintaining this level is the first step for the next leg higher. So far this level is holding (as of 6/1), and past resistance may be future support.

PORTFOLIO ADJUSTMENTS
We were very busy adjusting allocations during the month of May. On 5/1 we increased exposure to MOAT (VanEck Wide Moat), then on 5/5, and 5/24 we shifted some exposure from MOAT to QQQ. We incrementally added QQQ’s again on 5/9, 5/12 and on 5/31. We initated a position in QQQ on 3/17 and
it is our largest equity position as of month’s end, clearly gravitating to strength.

On 5/8 we shifted some of IEV/Europe to GCOW (Pacer global cash cows ETF), maintaining our max target exposure to non-U.S. stocks. Finally, on 5/31 we further reduced exposure to IEV, bringing it down to a couple percentage points, and increased exposure to SPYV (S&P value) and and S&P 500 fund. While international had been outperforming the U.S. market since October, the second half of May showed relative weakness, so we were happy to move on and bring more capital back to the U.S.
We are pleased with the additional sensitivity and more gradual allocation adjustments that our updated modeling process has recommended. We have observed, particularly over the month of May, that our modeling process is more flexible and gradual in it’s shift to strength, as well as the increased
diversification that comes with expanding our fund line up.

LOOKING AHEAD
While just a month ago there was a very low probability that the Fed would raise rates during its June meeting, the market odds have inccreased to about 50/50. Given the ongoing strength of the economy, a continued robust labor market, and earnings not as bad as expected, we could justify the Fed raising rates again, and even taking a pause. We don’t believe either scenario will cause any meaningful change to the market or the economy, and the Fed is certainly close to completing their tightening. Over the months ahead, we’ll digest the data, follow the signs that price provides, and see how much the economy is impacted by the past years worth of rate increases. For now, we’ll take solace in the calm that the market is signaling, and continue to ride a market that seems to be breaking out to the upside. Enjoy the sunny days of early summer.