Four Other Looks At The Next Six Months
Let’s take a deeper dive into these "worst six months of the year":
• When April is up more than 5%, like it was this year, the next six months are up 6.2% on average—well above the 1.7% average during these six months.
• Post-election years average 2.4% during these worst six months.
• The best six months of the year just ended, and they gained nearly 28% this time around. It appears that big gains during these months can eat away at future returns. In fact, the next six months are up only 0.7% on average when the previous six months are up at least 20%.
• When the S&P 500 closes at a new monthly high in April, like it did this year, the next six months do much better, up 5.6%.
Putting it all together, the only other year in history to close April at a new monthly high, be up at least 20% during the previous six months, and do it all in a post-election year was in 1961. What happened the next six months? The S&P 500 gained a very respectable 5.1%.
Conclusion
The media will have fun with the whole “Sell in May” warning to drive up clicks and views. Although you can’t argue that these months historically have been weak, they still sport a positive return, so totally going away isn’t wise. Recently we’ve been noting some potential reasons for at least a pause in the rally, and now the calendar adds another.
But amid a backdrop of an improving economy, massive levels of fiscal and monetary stimulus, and rising vaccination rates, we don’t expect any pullbacks to last very long, and we’d use any that appear as a buying opportunity. While we upgraded our forecast for the global economy and U.S. corporate earnings last month, for now we are maintaining our fair value target range for the S&P 500 of 4,050–4,100. At the same time, we acknowledge the environment appears supportive for stocks to do better, and we continue to recommend an overweight-to-equities and underweight-to-fixed-income position relative to investors’ targets, as appropriate.
Ryan Detrick, CMT, is chief market strategist at LPL Financial. Jeff Buchbinder, CFA, is an equity strategist at LPL Financial.