© Reuters. THE MARKET COULD DISPROVE THE OLD ADAGE “SELL IN MAY AND GO”
by Chuck Mikolajczak
NEW YORK (Reuters) – Wall Street could make a lie of the famous adage anglo-saxon “Sell in may and go” (“Sell in May and go away”), while the companies have posted strong quarterly results and that the u.s. economy continues its momentum.
According to this saying, the performance shares would tend to be the best on the period from November to April, compared to the current (may to October), thus prompting investors to exit the market before the summer to stay away for a few months.
The website Stock Trader Almanac estimated that, since 1950, the Dow Jones has lost 64,71 points from may to October, compared with a gain of 20.790,89 points between November and April. The S&P-500 took him 264,31 points between may and October and 2.420,72 points over the following six months.
The increase in equity markets between November and April, has been accompanied by increased volatility. After reaching a record on January 26, the S&P-500 has lost more than 10% to reach its lowest level on February 8, at 2.581 points and tested it again to a low at the end of march. The index is now 5.5 per cent below its peak in January.
“I don’t think that (the proverb) is going to work this year,” predicts David Joy, head of strategy for Ameriprise Financial.
“The economy is strong, profits are good and the market has already somewhat sold.”
This year, the month of may is a good start, the Dow and the S&P-500 are poised to achieve their best performance in this month since 2009.
According to the data of LPL Research, the years of mid-term elections, however, proved to be particularly difficult.
Elections to the House of representatives and the Senate, americans will be in November. Generally, the party in power loses seats after the election of a new president and the republicans hold the majority in the two Chambers.
Since 1950, those years, the S&P-500 has gained an average of only 0.1% between may and October, the index declined 14.7%, the most important of the four years of the presidential term of american.
“Clearly, the mid-term elections are blowing contrary winds and are a concern, but there are many others,” said Terry Sandven, equity strategist at U.s. Bank Wealth Management.
“The challenge of investing is increasing, in large part because of the pressures of increasing inflationary and a monetary policy that is about to change.”
The performance of Treasuries, ten-year-old has reached 3,128% on Friday, its highest level since July 2011 and many analysts expect it to climb to 3.25 per cent.
As for sell in may, the last time the Dow and the S&P has realized a negative performance on the month dates back to 2012. The following five years, the S&P rose over the period from may to October on four occasions, showing a single drop (0.3 per cent) over this period in 2015.
Another reason that calls for optimism this year, according to LPL, the performance of the S&P-500 over the previous six months, and its position relative to its 200-day moving average, a technical threshold that indicates the long-term trend
Since 1950, when the S&P-500 is entered in the period pre-summer above its 200-day moving average, after having posted gains in the previous six months, he took about 3.3%, showing a positive performance in seven out of ten times.
The course of actions during the years of the mid-term elections may be even more telling. The S&P took an average of 5.5%, achieving gains in two out of three times when these conditions were met.
On the year 2017-2018, the S&P-500 has gained 2.8 per cent between November and April and ended the period at almost 40 points above its 200-day moving average.
“And these elements do not take into account the enabling environment that persists, strong company earnings, tax reform, expenditure potential infrastructure and deregulation,” says Ryan Detrick, strategist at LPL Financial.
(Catherine Mallebay-Vacqueur for French service, edited by Marc Joanny)