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?”
This market-maxim 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 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.
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.
Yet after a year of historically low volatility, season patterns like this seem to be out sync as stocks and bond indices have uniquely pivoted down in tandem and are mostly in the red heading into the summer months.
In just the first quarter of 2018, we witnessed a skyrocketing VIX (fear) index and stocks selling off in the billions leading to a 10% correction with many investors now fearing the worst is yet to come. Still, consider that the madness of the crowd or “crowd psychology” is less rational overtime than markets themselves.
While I am not partial to market maxims nor a fan of seasonal investing methods, many aging boomer and retired investors who are still experiencing PTSD from past crashes are over-analyzing the short-term news on trade-wars, rate-hikes, geo-political risks and rising inflation as a potential signal for a greater sell-off this year.
Consider that the U.S. markets will continue to fluctuate like the tides with 10-14 percent pullbacks annually while entering the latter stages of the current economic cycle which may signal increased volatility. Just remember to keep your brain in the game and not jump off the roller coaster because of changing weather or inclement market conditions.
No matter how much real news, fake news, tweets or commentary may rattle the street or investor sentiment this summer, we advise investors to “follow the fundamentals” which are very much intact. Equity P/E ratios are lower, earnings are solid, rates and inflation are increasing at a mild clip and the fuel of tax reform is kicking in.
Market timing is a fools-game and can end up hurting your results and retirement goals for the long run. Our firm takes a contrarian view to the fear-mongering news and views pullbacks as a buying opportunity.
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 a long-term financial 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 financial goals for the long run.
For more information on our firm or to request a complementary portfolio stress-test and retirement check-up with Jon W. Ulin, CFP, please call us at (561) 210-7887 or email [email protected]
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.
No strategy assures a profit or protects against a loss.