Investment Strategy: “Sell in May and Go Away” or “All In, for the Win”
The stock market closed a strong trading week with nice gains leading up to the long holiday weekend. Investors will return to their trading desks only on Tuesday, Wall Street closed on Monday for Memorial Day.
When investors leave their beachside resorts behind, they’ll be in for a tidal wave of economic reports the moment they go back to work! They will be virtually deluged by economic figures upon returning from their long 3-day weekend.
Trading during the week of Memorial Day is likely to be significant for the market. First off, consumer spending numbers, which have raised alarms after mixed signals from Q1 chain sales, are expected to be released on Tuesday. Also on the roster, car sales, which have been weak of late – and manufacturing figures – are expected to be released on Thursday. And then comes Friday, with the month’s most important economic figure, May’s employment figures. As of now, analysts’ consensus points to 185 thousand new positions for the month, compared to the 211 thousand positions added in April. The unemployment rate is expected to remain low, at the 4.4% level, with hourly wages expected to rise by 0.3%.
“Sell in May and run away,” could be the most widely known and time-honored saying on Wall Street, but it seems that it did little to dissuade American hedge funds from doing just the opposite this year. With that said, the S&P 500 has already seen aggregate gains of 10.8% in the first 6 months of the year, so why wouldn’t investors lock in profits, and horde their cash for a little while?!
In fact, the political drama and high stock market valuations have clearly impelled some investors to cash out, with American trust fund investors having withdrawn over $17 billion from stock funds month-to-date, $10.1 billion withdrawn just last week alone, the second biggest week of withdrawals for the year.
At the same time, some courageous investors have bucked the trend and are willing to go against both the grain – and history – and have even adopted the approach of going all in, going for the kill! Counterintuitively, the optimism’s got nothing to do with the prospect of Trump’s success in implementing his policies but rather, a healthy global economic forecast. Take for example, a top money manager at Parkers Investment House, which controls a $10 billion trust fund. The manager commented that despite the fact that it seems that stocks are pricing in hope for the fruition of Trump’s stimulus package this year, his own expectations that Trump will advance his agenda this year have fallen to 40/60 from 80/20 seeing that he doesn’t foresee Trump winning enough support in his own, divided, Republican party. As far as that goes, from his outlook that means that there’s a possibility of a selloff a few months down the road.
In our view, if the year passes Washington by without Capitol Hill doing anything to put tax reform into motion, that would be quite the disappointment for the market. The disappointment, though, would only express itself in the market come November or December, because only then will market players realize that a full year’s passed without anything having being accomplished.
The tactic of “selling in and running away” has been well-known on Wall Street for decades now, the basis of it being that the period from November – May has historically outperformed the latter 6 months of the year. The theory also works well!
Take for example, the last 20 years. A $10,000 investment in the S&P 500 from November to April would have turned into $34,000, while an identical $10,000 investment from May to October in those very same years would have netted $9,850.
A more sweeping simulation from 1928-2017 would show $10,000 becoming $427,000 from 1928-2017; from May until October, the $10,000 would have become $257,000.
The reasoning behind the “immortal” saying, “Sell in May and run away,” is that the summer months are usually slower, with a tendency to be more volatile. Higher volatility is usually accompanied by market weakness. Other reasons for the theory’s overall validity include firms’ tendency to revise their overly optimistic forecasts downwards mid-year, again revising their forecasts on the upside towards the end of the end-of-the-year holiday shopping season.
Weekly Summary: The Dow Jones rose 1.33%, the S&P 500 tacking on 1.43% and the NASDAQ jumping 2.45%.
Have a great trading week!
|Monday||No Trading||Memorial Day|
|Wednesday||10:00||Pending home sales||–||Medium|
|Thursday||11:00||Crude Oil Inventories||Low|
|ADI||Analog Devices, Inc.||AM||Wednesday|
|KORS||Michael Kors Holdings Limited||AM||Wednesday|
|PANW||Palo Alto Networks, Inc.||PM||Wednesday|
|HPE||Hewlett Packard Enterprise Company||PM||Wednesday|
|BUD||Anheuser-Busch InBev SA/NV||AM||Thursday|
|TECD||Tech Data Corporation||AM||Thursday|
|DG||Dollar General Corporation||AM||Thursday|
|DCI||Donaldson Company, Inc.||AM||Thursday|
|LULU||Lululemon Athletica Inc.||PM||Thursday|
|FIVE||Five Below, Inc.||PM||Thursday|
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