Although the old adage worked last year, it doesn’t have a great track record.
After falling 11% in the first six weeks of the year, stocks have bounced back, albeit as a slower pace. In the six weeks following the February 11th bottom, the S&P 500 gained 11%. In the five weeks that followed it rose 1.4% and through the end of April were only off about 3% from the highs set last May.
A recovery in oil prices, better economic readings, and some more positive data points from overseas, all helped spur the market recovery. Now we enter the month of May when the old adage advises stock investors to “sell in May and go away.”
Since 1970, according to Credit Suisse, the S&P 500 has gained an average of 1% in the period between Memorial Day and Labor Day. When stocks rose over that period, they gained an average of 5.6% and when they declined, they lost an average of 8%. While trading volumes do tend to be lower in the summer as investors and traders take vacations, history doesn’t really support the rhyme.
Last year the strategy would have worked. An investor who sold the S&P 500 on the Friday before Memorial Day and repurchased the Index the Tuesday after Labor Day would have avoided a 7.4% decline.
But what about this year?
The summer will start off with some potentially market-moving events. The next Fed meeting is scheduled for June, although they appear unlikely to take rate action given April’s meager job readings. Later in the month, the UK will vote whether to remain a member of the EU. July will bring another batch of corporate earnings reports, which may continue to be mixed. There are political uncertainties surrounding the Presidential election. And more potential “gotchas” coming from Europe and Asia. But all things considered, we continue to believe that diversification and a long-term focus will ultimately be rewarded.
So don’t go away in May, stay and play, and remain focused on your long-term investment goals!
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