Don’t Sell in May and Go Away

For many years, the well-known adage heralded by the Stock Trader’s Almanac advising to “Sell in May and Go Away” until October held its ground. Since 1928, this period from May to October traditionally showcased a downturn in stock market performance, contrasting starkly with the robust equity returns observed in the other half of the year from November to April. The rationale behind this seasonality might have stemmed from reduced productivity during the summer vacation season compared to accentuated equity profits by a consumption-led spike into the Chirstmas Holiday shopping period and the onset of Spring and Easter. Despite relative seasonal weakness, the period from May to October typically still achieves a moderate 1.7% return, with 8 out of the last 10 years posting positive results. Notably, May and February usually rank among the three worst months of the year, yet this year, both months have seen significant gains powered by artificial intelligence in the stock market. The projected 4 to 7% correction we anticipated for May materialized in April, followed by a smaller 3% downturn in the final week of May. Historically, healthy gains are expected in the coming months before the year’s weakest phase culminating in September/October.

 

It is pertinent to mention that our initial market risk assessment, foreseeing a 3% correction in early June, was precisely met on May 31st, before end-of-month buy programs swiftly pushed the market up by over 1% in the final hour of trading. May 31st marked the expected low for May, as previously shared. While there remains a risk of a further leg lower into June 27th, we anticipate a generally upward trend until reaching a peak sometime in July or August. Following the late May to June period of volatility, the next critical phase for downside risk is expected during the pre-election seasonal pattern in September.

Our recommendation stays firm on maintaining substantial investments until our ExecSpec composite indicator signals an overbought market. Both technical and fundamental indicators have been supportive yet remain neutral for new actions in equity markets. With a thriving employment landscape, a surge in consumer net worth, and ample liquidity in the financial system, these positives are counterbalanced by concerns about long-term inflation and rising borrowing costs impacting the lower-income demographic. Until our sentiment composite returns to overbought territory and the 10-Year Treasury yield approaches 5%, any market corrections and worries of an overheating economy or recession are expected to remain subdued. While a quick technical pullback of 10% or more is a looming possibility near September, we are poised for higher prices in the ongoing Bull market unless prompted otherwise by our indicators.

 

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