June Strength not June Swoon
I don’t care too much for money, Money can’t buy me love. -Beetles
Swoon means to faint, lose consciousness or to enter a state of hysterical delight like a gaggle of teenagers swooning over the Beetles at a 1960’s rock concert. While you may swoon over the perfect dress, a chocolate cupcake, or a touchdown by your favorite NFL team, the investment connotation of swoon is on the more ominous, fainting side of the equation.
June Swoon follows the market adage “Sell in May and go away,” with the idea being that a market retreat occurs readily in June after investors go on vacation in May and cause a lull in the stock market for the summer months. We have discussed in many past newsletters that “history may rhyme but does not always repeat,” depending upon where we are in the market cycle, and other significant happenings for the year, like the elections.
Historically, June has sometimes seen declines in the stock market, known as the “June swoon.” However, this year may be different, especially given that it is an election year. Election years often bring heightened market attention and can lead to a stabilization or even rally in the stock market as investors anticipate potential policy changes. The political landscape can introduce both uncertainty and opportunity, often driving investors to stay engaged rather than retreat.
Additionally, solid economic indicators, such as strong employment numbers and robust consumer spending, provide a buffer against significant downturns. As recently noted by a Carson Group analysis, June has been the 11th worst month in the past 20 years with only September worse, but in the past 10 years it is the 5th best month and during an election year it is the 3rd best month. Regardless of the improved odds, we do not promote market timing or maxims as sound investment strategies for long term investors.
Strength in Election Years
As we discussed in our recent “Don’t’ Sell in May and Cash Out” newsletter, stocks typically perform well during election years. While midterm years (like 2022) have historically been the worst years for stocks, election years gain 7.3% on average and are higher a very impressive 83.3% of the time. In election years, stocks are historically down near the first quarter before rallying after the election into the end of the year as markets gain clarity on what they must work with in the White House.
Whether or not history will again repeat as well as rhyme with all the uncertainty around both potential candidates to be shortly nominated being President Biden and Trump is unknown -but keeping an eye on past stats going back decades can help to develop your viewpoints and portfolio strategy for the long run.
Time, Not Timing, Is What Matters
“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
Whether you take the chart below of stock results by month over the past 96 years with a grain of salt or not, consider, as we discuss in almost every quarterly client service meeting, the stock market goes up more often than it goes down regardless of headline news on wars, bank crashes, election uncertainty, lingering inflation, high rates, and inverted yield curves. The S&P 500 has historically been a profitable investment in nine of the 12 months in the year or 75% of the time, and the declines have been negligible during the few down months. The odds are a bit better than a table game in Vegas.
According to S&P Global, the historical average yearly return of the S&P 500 is 9.88% over the last 20 years, as of the end of April 2024. Adjusted for inflation, the 20-year average stock market return (including dividends) is 7.13%. The lesson learned is that slow and steady wins the race over a multi-decade retirement. The best offense is a strong defense built on the chassis of a globally diversified portfolio and not aiming for a home run with your life savings. Successful investing is truly about your time in the market. Investing should not look nor feel like a roulette table in Vegas.
The Inverted Yield Curve Signal May Be Broken
If you are less concerned about short term seasonal summer volatility and more concerned about an overall recession arriving later this year due to the ominous inverted yield curve signal, you may be disappointed. The inverted yield curve has been a reliable recession predictor for decades.
The glitch known as an inverted yield curve, where short-term Treasury yields exceed those of longer-term government debt, has traditionally signaled an economic pullback and that a recession is looming. The inverted yield curve flashed its warning lights In each of the previous eight U.S. downturns, but this time may be different. The yield curve has been inverted for a record stretch of nearly 400 trading sessions with no signs of a major slowdown. There are several factors that could be contributing to this:
Unprecedented Monetary Policy: The Federal Reserve’s aggressive interest rate hikes and unconventional monetary policies in response to unique economic conditions, such as the COVID-19 pandemic, may have distorted traditional signals like the yield curve inversion.
Global Economic Dynamics: Increased globalization and interconnected financial systems mean that local yield curves might not fully reflect the complexities of the global economy.
Investor Sentiment and Forward-Looking Nature: The stock market tends to be forward-looking, pricing in expectations for the future rather than current conditions. This means that while the yield curve may suggest a slowdown, the stock market might be focusing on recovery and growth prospects in the next 6-12 months, now in the second year of the post-pandemic bull market.
As recently noted by the Wall Street Journal on this topic, Inversions have reflected differing circumstances over the years. In the early 1980s, the Fed was hardly trying to avoid a recession when it raised rates to nearly 20% to fight double-digit inflation. In other cases, some economists believe that a recession could have been avoided had it not been for external shocks, such as the surge in oil prices when Iraq invaded Kuwait in 1990 or the Covid-19 pandemic in 2020.
The bottom line? Despite past trends and traditional indicators, the stock market’s forward-looking nature, coupled with solid economic fundamentals, suggests that a June swoon is not inevitable this year. Investors should stay focused on core economic indicators and maintain a diversified portfolio to navigate market volatility successfully.
Remember, the best offense in investing is a strong defense through diversification based on your age, risk tolerance and goals, and not by chasing high-risk opportunities with your life savings nor making concentrated bets. Investing for retirement should be a steady, calculated process rather than a gamble like Vegas.
For more information on our firm or to request a complementary investment and retirement check-up with Jon W. Ulin, CFP®, please call us at (561) 210-7887 or email jon.ulin@ulinwealth.com.
Note: Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index.
Information provided on tax and estate planning is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that are believed to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as NewEdge Advisors, LLC does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors,
