- As April comes to a close, investors are again wondering whether to “sell in May and go away”
- Investors will also be hearing a lot about the Dow’s new “Golden Cross”
- Our conclusion is that signals are mixed and now is not the time to take on undue risk.
As most readers know, I always title my reports with a fitting song title. Sadly, this year I’ve opted to choose one to honor a fallen music legend, like David Bowie and Glen Frey. This week, it’s an ode to the late-great Prince—a life gone too soon.
Back to business
We are in that “season” when you will hear a lot about whether it’s appropriate this year to “sell in May and go away,” which is one of the most time-honored market adages, and for good reason. Since 1950, nearly all of the S&P 500’s gains have occurred between October and April. As you’ll see detailed in the tables below, the mean return since 1950 for the S&P 500 during May through October was 1.3%; while for November through April it was 7.1%.
Source: Ned Davis Research (NDR), Inc. (Further distribution prohibited without prior permission. Copyright 2016© Ned Davis Research, Inc. All rights reserved.), as of October 31, 2015. *Data postdates 1942-1966 secular bull market.
In terms of the growth of $10,000, you can more clearly see the vast spread between how the market’s performed in these two six-month periods.
Source: Ned Davis Research (NDR), Inc. (Further distribution prohibited without prior permission. Copyright 2016© Ned Davis Research, Inc. All rights reserved.), as of October 31, 2015.
The “strategy” did not work for the three years from 2012-2014, or for the five years from 2003-2007, when there were gains between May and October in each year. In addition, as you can see in the tables above, there is a meaningful difference between how the market performs from a seasonal perspective in secular bull or secular bear markets. Average gains and the percent of positive cases have been higher in secular bulls than in secular bears (even if they are still lower than in the November through April period).
Golden Cross not as golden as perceived
Ostensibly supporting the bull case as we head toward May, is another market metric which will undoubtedly get some attention this week. The Dow Jones Industrial Average just experienced a so-called “Golden Cross.” This is a technical term used to describe the 50-day moving average crossing above the 200-day moving average as both moving averages are rising. As you can see in the chart below, this just occurred again and it’s the first Golden Cross for the Dow since January 2, 2012. It’s generally seen as a very bullish indicator for stocks…but is it?
Source: FactSet, as of April 22, 2016.