Sell in May & Go Away

There is an old theory on Wall Street termed “Sell in May and Go Away”. This alludes to the fact that equities tend to underperform from May to October, so traders should sell and wait until the fall until the markets are better. Historically, this isn’t the best strategy to follow. A “Stay Invested” strategy, since 1990, has outperformed the strategy of trying to time the markets. While volatility is historically higher in the months from May to October, equities have historically been better. Another item is that in the last 10 years the market has been up in that time range 8 of those years from May to October. This data is why it is important to keep a well-diversified portfolio during times like these.

Earnings

One of the drivers of the philosophy of not to sell in May is earnings. Last week was the biggest reporting week for S&P 500 companies. It’s important to keep in mind that 40% of these companies reported earnings during that time. The outcome was that they were very strong. The year-over-year recovery rate has gone from 33.9% up to 46.3%. Now that 303 of the 500 largest companies in America have reported earnings, the overall scope appears to be looking strong. On top of this, revenue (sales growth) is up 11.6%. This paints a strong picture moving forward in which these companies look like they are growing and where the strength of the markets come from. However, we saw the market trade down and end relatively flat, depending on how you look at it. How can this be and is that a good sign? To us, this is a very positive sign because you really want to see earnings strong and in turn the market appears less expensive. We want to see, what they call, a consolidation period in which earnings are improving, price to earnings ratio is falling and the market is staying flat. Things are looking strong from a Fundamental standpoint.

Technical Analysis

Looking at Technicals in the market we have seen the S&P 500 close for the third consecutive week within 5 points of each other during that time range. This relates back to Fundamentals and consolidation period previous discussed that we are in fact seeing a stagnant market in the short term. We saw a close of 4,181 on Friday for the S&P 500. This gives us a new resistance level of 4,220 and new support of 4,140. It’s also very important to point out that the 50-day moving average finally crossed over 4,000. We want to continue to keep an eye on this because it could potentially become our new floor or ceiling for the markets moving forward.

 

Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here

Adam Vansant, AIF®, BFA™
Vice President
Wealth Consultant
Email Adam Vansant here

 

Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

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