Yahoo Finance 5 ETF Areas That Underperformed in May
Wall Street has experienced a robust upswing in May, driven by fresh expectations of Federal Reserve rate reductions at the initial phase of the month, strong corporate profits, and the artificial intelligence (AI) craze. This month, all three principal indexes soared to unprecedented heights.
The S&P 500 surpassed the 5,300-mark, the Dow Jones Industrial Average reached 40,000, and the Nasdaq Composite Index broke through the 17,000-threshold for the first time. The S&P 500, the Nasdaq and the Russell 2000 have gained about 3.4%, 5.7% and 2%, respectively in the past one month while the Dow Jones has lost 0.3%.
Recent data indicates that the U.S. economy is on track for another robust GDP increase in the second quarter. In May, U.S. business activity surged to its quickest rate in over two years following a couple of months of moderated growth, with the service sector leading the charge. The US consumer confidence climbed in May, reversing a three-month downward trend.
In the first quarter of 2024, earnings rose by 6%, marking the most significant growth rate in almost two years. The AI euphoria, which was started to be deemed overhyped, once again took the spotlight thanks to NVIDIA's (NVDA) exceptional earnings report. The report has infused considerable optimism into the global AI wave.
Bank of America's most recent survey reveals that investor sentiment is at its most optimistic since November 2021, with rate cut expectations, rather than profit forecasts, fueling this bullishness. However, rising rate worries resurfaced at the end of the month due to sticky inflation and hawkish Fed minutes.
There is the lingering uncertainty over the timing of the rate cuts, which has recently cast a shadow over investor confidence. The benchmark US treasury yield was 4.55% on May 30, versus the monthly closing high of 4.63% recorded on May 1 and a low of 4.36% recorded on May 15. Approximately 82% of global fund managers anticipate the Fed's initial rate cut in the latter half of the year.
Against this backdrop, below we highlight a few ETF areas that underperformed in May.
ETF Areas in Focus
Marijuana
AdvisorShares Pure US Cannabis ETF MSOS – Down 12.4%
Roundhill Cannabis ETF WEED – Down 11.6%
The U.S. federal government is considering reclassifying marijuana from a Schedule I to a Schedule III drug, which would acknowledge its lower risk compared to substances like heroin and enable significant changes for businesses and consumers.
This move would ease tax burdens on businesses, potentially decrease federal arrests, and increase funding for research. However, marijuana would remain illegal under federal law, and a complete de-scheduling would have more profound impacts.
Interestingly, MSOS is up 16.9% despite the downturn in May. The cannabis industry has yet to pick up and generate returns for investors. But isn't the anticipated rescheduling of its status already reflected in the current prices?
Inverse Bitcoin
ProShares Short Bitcoin Strategy ETF BITI – Down 9.9%
In a landmark move, the US Securities and Exchange Commission (SEC) has given the green signal in late-May for the potential launch of eight exchange-traded funds (ETFs) linked to ether, the second-largest cryptocurrency globally. This decision follows the earlier approval of bitcoin ETFs, marking a pivotal shift in the regulatory environment for digital assets.
The Ether event in May marked a turning point for the entire cryptocurrency industry. Additionally, the Bitcoin halving in April boosted Bitcoin prices and negatively affected this inverse ETF (read: Bitcoin ETFs to Gain as SEC Approves Ether ETFs).
Energy
iShares U.S. Oil & Gas Exploration & Production ETF IEO – Down 7.9%
WTI crude oil ETFUnited States Oil Fund LP USO declined 3.6% past month (as of May 30, 2024). The lack of plans to enact Fed rate cuts in the world's top consumer market – the US – weakens the demand outlook.
Cybersecurity
WisdomTree Cybersecurity Fund WCBR – Down 8.7%
Cybersecurity space has been a bit overvalued. The speculative nature of cybersecurity firms contributes to their overvaluation. Growth in the space is expected to be slower than it was anticipated initially due to spending fatigue among customers, even as companies transition towards integrating artificial intelligence into their services. High-profile hacking incidents have exposed vulnerabilities in cybersecurity defenses, potentially shaking investor.
Sugar
Teucrium Sugar Fund CANE – Down 6.9%
Raw sugar futures have been hovering around the lowest level since end of October 2022, as traders anticipate a global surplus in the 2024/2025 season. Brazil, the largest sugar exporter, is on track for its second biggest crop on record. India as the second largest sugar producer is not expected to resume sugar exports until the second half of 2025.
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United States Oil ETF (USO): ETF Research Reports
iShares U.S. Oil & Gas Exploration & Production ETF (IEO): ETF Research Reports
ProShares Short Bitcoin Strategy ETF (BITI): ETF Research Reports
Teucrium Sugar ETF (CANE): ETF Research Reports
AdvisorShares Pure US Cannabis ETF (MSOS): ETF Research Reports
WisdomTree Cybersecurity Fund (WCBR): ETF Research Reports
Roundhill Cannabis ETF (WEED): ETF Research Reports
