October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December August and February. – Mark Twain
Mayday is an emergency procedure word used internationally as a distress signal in voice procedure radio communications. It derives from the French phrase “venez m’aider”, meaning “come help me”.
Could this distress signal be a precursor for the popular stock market adage which warns investors to “Sell in May and go away?” Is it an ominous indicator of a Trump Slump? The saying is heavily based on the concept of seasonality, specifically that stocks perform better in the winter months than they do in the summer.
In such strategies (which we rarely see implemented) stocks are sold at the start of May, then are bought back again in the fall, typically around Halloween. This feat is also associated to the “Halloween Indicator” effect conducted by Ben Jacobsen, chairman in financial markets at the University of Edinburgh Business School, Scotland.
Consider the following Dow Jones index results in May just over the past seven years after the market bottom in 2009:
- 2016: 0.1%
- 2015: 1.0%
- 2014: 0.8%
- 2013: 1.9%
- 2012: -6.2%
- 2011: -1.9%
- 2010: -7.9%
While we are generally skeptical of calendar patterns like this, the S&P 500 has gained +7.2% on average and has risen +84% of the time during the six months ending in April (since 1990), versus a paltry +1.4% average gain during the six months ending in October (positive +68% of the time). (LPL Financial Research)
What this tells us, is that historically the summer months have been slower than the winter months, but you never know what you may get. In reality, “Sell in May” is not a myth, maxim, truth or a rule of thumb, just a rule of averages, like flipping a coin
It’s been said that the summer volume slowdown has been partially due to Wall Street big-wigs leaving their desks in Manhattan for some vacation time in the Hamptons. Whatever the reason, August and September seem to bring out increased volatility after the as the summer doldrums fade away.
No matter how much Washington rattles the street or investor sentiment this summer, focus to follow the fundamentals which are very much intact. The madness of the crowd or crowd psychology is less rational overtime than markets themselves.
While financial news shows will be hard at work this summer drumming up their ratings along with investors’ fears on the “US markets being overpriced” or on “possible policy mistakes by Trump,” we are advising our clients to take in the news with a grain of salt and to not mull over maxims.
While a thousand point pull back in 1987 would have equated to a 40% correction, today a 1K drop equates to no more than a five percent blip on the computer screen, nothing to lose sleep over. Still, the financial news shows will track each 500 to thousand-point change in the Dow with the fervor of an approaching hurricane.
The U.S. markets will continue to go up (and down) like the tides with 10-14 percent pullbacks each year as the “new-norm” while entering the later stages of the current economic cycle.
Just a friendly reminder that no-one has a working crystal ball to predict elections, wars, hurricanes, fashion trends or market crashes.
If you are a disciplined investor with an investment process and plan in place, you are not one to take short term action with your money based on seasonal patterns or the calendar turning, but on your actual investment process and strategy.
For more information on our firm or to request a complementary consultation please email [email protected] or call (561) 210-7887 to get started today.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Loss of principal may occur.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
No strategy assures a profit or protects against a loss.