The Wall Street Bull, located in the financial district of New York City.
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The “sell in May, and go away” strategy isn’t getting much love on Wall Street this year.
Market pros acknowledge that history clearly shows the market’s strongest six-month period is November to April, but they also say that’s not necessarily a factor that should shape investors’ plans in any year.
“Any investment strategy that you can summarize in a rhyme is probably a bad strategy,” said Jonathan Golub, chief U.S. equity strategist at Credit Suisse. Golub raised his S&P 500 target on Friday to 4,600 for year end from 4,300, based on strong earnings.
He said on average the market’s performance does follow the pattern of weakness between May and October, but it’s not a reason to get out of stocks.
“This would be perfectly reasonable if every single May looked the same as the May the year before,” Golub said. Just comparing this year to last year shows a huge contrast.
“Last May of last year the market was jumping off the bottom.” He said now the backdrop has totally changed, from a country and economy gripped by the pandemic last year, to a period in which a booming economy and earnings should drive further gains.
“Look at what we’re having this earnings season. U.S. companies are beating estimates by 22% — 22% is unheard of. The economic data is phenomenal,” said Golub.
The second quarter is expected to be even stronger, and those earnings reports will be released in July.
“I’m not selling in May, and I wouldn’t advise somebody else to,” said Golub. “I think the biggest mistake you can make in a market like this is to get too cute and get out too early. You’re better off trying to stay a little longer than get out too early.”
A view of the New York Stock Exchange Building on Wall Street in Downtown Manhattan in New York City.
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Carter Worth, chief market technician at Cornerstone Macro, agrees that generally investors would not be well served to get out of the market in May and stay out through October.
But this year he expects the market to enter a weak period. Worth said aside from the seasonal factors, he expects the market has been topping.
“It’s a time to reduce exposure. Intermediate tops can last for three to five months,” he said.
Worth studied the seasonal trend and found that the 27.8% performance of the Dow from Nov. 1 through April 30 was the fourth strongest for that six-month period going back to 1896.
“After especially good November to April six-month runs, the ensuing six months is lackluster,” Worth said. He added that this could be the case for any six-month period following a strong gain for stocks.
The average gain for the Dow in the top 10 years for the November-to-April period was 27.5%, compared with an average 2.9% in the ensuing May-to-October periods. The average overall gain for the full year in the 10 best years for November…
Go to the news source: Why investors should ignore the old Wall Street adage ‘Sell in May’