By: Matthew Theal, CFP® & Joshua Winterswyk, CFP®
Sell in May and go away? That’s the question I’m pondering after a disastrous month of March, April was a great month for the stock market. The S&P 500 returned 11% over the month, giving confidence to investors that the pandemic will soon pass.
That said, the economic data worsened during the month of April. First-quarter GDP was reported at -4.8%. Confirming we are in-fact in a recession.
Meanwhile, over the last 6 weeks, more than 30 million Americans have filed for unemployment.
With economic data during the month so poor, people wondering how can the stock market have gone up?
The simple answer is, the stock market makes no logical sense. Or put another way, its a forward-looking mechanism that attempts to price events and data in well in advance. If the March sell-off was for the recession (April economic data), was the April rally for the recovery?
There’s an old stock market adage, it’s known as “Sell in May and go away.” It comes from the historical underperformance of stocks during the summer months. The strategy says you should sell stocks in May and buy back in November.
Does it work? It did but it looks like it hasn’t over the last 10 years. See this chart from LPL Research. Learn more about Sell in May and go away from Investopedia.
Being that we are still in a bear market, you probably will see a lot of talk about “Selling in May” this month but that doesn’t mean you should act. Long-term investors are always better off with a buy and hold strategy.
Best From the Web
Thanks to competition from Robinhood, stock trading is now free at Charles Schwab and TD Ameritrade. According to this article, TD Ameritrade opened a record 608,000 new accounts in the first quarter! With no live sports, people are turning to the stock market for entertainment. Have we seen this before? Yes in the late ’90s. Dangerous? Absolutely.
We put this story on your radar two weeks ago, but it goes all the back to January when infamous blogger Zero Hedge first reported it and got kicked off Twitter for spreading false information. Well, now it looks to be true, as the President and US intelligence have confirmed that COVID-19 originated in a lab in Wuhan. This debunks the bat in wet market theory that the Chinese government was trying to sell the world. The only question now is, what will the consequences be for China?
There’s a famous Warren Buffet quote that is perfect for this article. Mr. Buffet said, “only when the tide goes out do you discover who’s been swimming naked.” This WSJ article about AirBnB super hosts is the kind of story you read in a bear market. According to the author, many AirBnB hosts are overleveraged and losing thousands of dollars a month as they are unable to rent their properties. Many hosts were relying on rental payments to pay the mortgage on their properties. Some hosts had even built mini empires owning more than 25 different AirBnB rentals!
Chart of the Week
As we turn the calendar over to May. The stock market confirmed it was still in a bear market as judged by the popular 200 moving average. The purple line in the chart. A monthly close above could have singled the start of a new bull market.