The recent turmoil in the stock market has left many investors uncertain about the future. With fears of interest rates remaining high due to reports of increased inflation, the market is experiencing its first losing month since October. The S & P 500 has seen a decline of over 3% this month, despite registering a more than 6% advance for the year. Investors are concerned that the current pullback is not enough, and that stocks may have further to fall before reaching a stable bottom. The combination of inflation, rising treasury yields, geopolitical risks, and sell signals from market indicators have created a sense of unease among investors.
The month of May has a historical reputation as a weak period for stocks, leading some investors to adopt the strategy of “sell in May and go away”. This strategy involves selling off equity holdings at the beginning of May and re-entering the market in the fall when stocks tend to perform better. According to the “Stock Trader’s Almanac”, the period from May to October is historically the worst six months for stock markets, with the Dow Jones Industrial Average averaging a modest gain of 0.8%. On the other hand, the period from November to April tends to be more favorable for stocks, with an average advance of 7.3%.
While some investment strategists are bearish on the current stock market situation, others remain more positive about the future. Mark Luschini, chief investment strategist at Janney Montgomery Scott, expects more volatility and downside in the near future but remains optimistic about equities for the rest of the year. He suggests that a retest of the 4,800 level in the S & P 500 could present a buying opportunity for investors and recommends increasing exposure to cyclical sectors such as financials, industrials, and utilities.
However, Jeff Hirsch, editor-in-chief of the “Stock Trader’s Almanac”, has taken a more cautious approach by moving out of positions in the Dow and the S & P 500 earlier this month. He cited a sell signal in a technical indicator known as the moving average convergence/divergence (MACD) as a reason for his decision. Despite this, he remains positive on equities for the remainder of the year and advises investors to reevaluate their portfolios by getting rid of losers, tightening stops, limiting buying, and exercising caution.
Ryan Detrick from Carson Group has a more optimistic view on equities, noting that stocks have historically performed well in May over the past decade. He believes that, given the decent performance of the market so far this year and the fact that it is an election year, the next six months are unlikely to see major weakness in stocks. Detrick’s perspective highlights the diversity of opinions among investment professionals, with some advocating for caution while others remain bullish on the market.
The stock market’s current woes have created uncertainty and unease among investors. While some anticipate further declines and increased volatility, others see opportunities for buying and remain positive about the outlook for equities. The historical trends and strategies surrounding the month of May add an additional layer of complexity to the market’s current situation. As investors navigate these challenging times, it is crucial to carefully evaluate their portfolios, consider different perspectives, and make informed decisions based on their individual risk tolerance and investment goals.