The Stock Trader’s Almanac has famously said:  “Sell in May and go away!”  The idea is that while the stock market may be positive, it is the least seasonally strong during this six-month period of time each year on average.  We must always keep in mind that past performance cannot predict future performance when making decisions.  We have dozens of indicators that we weigh each and every day, so we do not recommend that anyone use this “sell in May” data as a single trading strategy.  Interestingly enough, so far the data has matched up with the historical perspective:

As of May 4th 2020, the DOW and S&P stock market indexes have lost for three days in a row (Source:^GSPC), and that has been a tailwind for our portfolios because we recently started adding more positions that profit when the stock market loses money just like we did in February and March.  In April the markets rebounded, and our portfolios traded sideways to slightly down overall.  Year to date, we continue to outperform by a wide margin with significantly less volatility. 

We plan to make adjustments soon to either add stocks if it appears the market is going to head up, or add more investments that profit when stock market declines if the markets start to head further south.  It appears overall that we’re at a crossroad because the market hasn’t moved very much the past 2-3 weeks.

Another historical data point is that every bear market in the past 100 years has followed the same pattern:  The market dropped, then it rebounded somewhere between 50-65% of the losses (which made most people feel safe again), and then it changed course and headed severely down again.  The bounce up typically lasted 8 weeks.  We’re currently at week 5 of 8 weeks if this historical trend continues.  Again, we do not recommend anyone trade off of this because history cannot predict the future, but it’s an interesting data point to consider.  If history were to repeat itself, the market would go sideways for the next 2-3 weeks and then start crashing again.  Anything is possible, which is why we monitor the portfolios daily.

Why would either of these historical negative patterns occur?  Two potential reasons:

1. Humans always act like humans. They process bad news in repeatable patterns, and go through stages, such as denial, anger, acceptance, etc.

2. In today’s market, we estimate computers control over 90% of trading using complex mathematical algorithms. They have all known stock market data within their database and can map and model likely outcomes and trends. Retracing/rebounding 50% or 65% of a drop is textbook at this point, and since it’s happened 100% of the time in the past, the computers may put more emphasis on it potentially making it a self-fulfilling prophesy.

Alternatively, why won’t the market potentially drop?

1. The smartest minds in the world are all working on treatments and vaccines for Coronavirus, and several treatments have shown promise.

2. President Trump will do everything within his power to get re-elected.

3. The Federal Reserve has the power to increase the money supply. In March 2009 the Fed set the record for the most money printed to support the stock market.  They broke that record by a factor of five times in March of 2020.  There is an old Wall Street saying:  “Don’t fight the Fed”, and there’s a chance that holds true. 

We’ll continue to provide timely updates and in the case of our in-house managed TD Ameritrade portfolios, monitor your accounts daily.

If you have any questions about taxes, your individual investment portfolio, our 401(k) recommendation service, or anything else in general, please give our office a call at (586) 226-2100. Feel free to forward this commentary to a friend, family member, or co-worker. If they would like to receive this commentary in the future, please send us an e-mail at at your earliest convenience. If you have had any changes to your income, job, family, health insurance, risk tolerance, or your overall financial situation, please give us a call so we can discuss it.

Thank you for your confidence and referrals!

Bob, Ken, Jim, and Zach
Summit Financial Consulting

Special Request:  If you have a friend or family member who has investments and they are concerned about losing money in the market, please have them contact us to receive a complimentary second opinion.  We can analyze their existing holdings and show them (through independent research) what hidden fees they may be paying, as well as provide a risk assessment.  Call us (586) 226-2100 or respond to this e-mail and we’ll contact them.

Reminder:  You have until July 7th to contact us if you’d like to contribute into an IRA so you can write it off on your tax return.  In addition, we can help you with tax prep!  Please call (586) 459-5340 to find out how much we can save you on your tax preparation expenses. 

Interesting Points

“When written in Chinese, the word ‘crises’ is composed of two characters. One represents danger and the other represents opportunity.” – John F. Kennedy

An Australian study that followed the eating habits of 12,000 people found that those who added eight portions of fruit and vegetables a day experienced an increase in overall mood, health, and life satisfaction- the equivalent of moving from being unemployed to being employed.  Source: -The University of Warwick

Over the past eight years, college enrollment nationwide has fallen by about 11%. Source: -WBEZ, April 21, 2020

On Tuesday, April 7, the TSA screened 97,130 people, down 95% from a year ago. The last time the country averaged 97,000 airline passengers per day was in 1954. Source: -The New York Times, April 9, 2020

Since the beginning of April, the 136-year-old puzzle maker, Ravensburger, has been selling puzzles at a rate of nearly 20 per minute- a 286% increase over the previous month. Source: -Morning Brew, April 14, 2020

In Canada, a pint of beer will cost you about $5.00. Today you can purchase a barrel of Canadian crude oil for less than that. In the U.S., oil producers are starting to see negative prices, meaning they are paying refiners to take the product off their hands. Prices for Wyoming Asphalt Sour, a dense crude oil, recently fell to -19 cents a barrel. Source: -CNBC and World Oil, March 30, 2020

Due to the increase in teleworking during the coronavirus pandemic, Walmart is now selling more tops than bottoms. Source:  -NPR, March 28, 2020

​Notes & Disclaimer: Stock market indices, like the S&P 500 Index, are unmanaged groups of securities considered to be representative of the stock market in general or subsets of the market, and their performance is not reflective of the performance of any specific investment. Investments cannot be made directly into an index. Historical returns data are calculated using data provided by sources deemed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, or correctness. This information is provided “AS IS” without any warranty of any kind. All historical returns data should be considered hypothetical. Past performance is no guarantee of future results.

This communication is only intended for recipients who reside in states where our agents are licensed to sell these products. Investment advisory services are offered through Summit Financial Consulting, LLC, an SEC registered investment advisor. Registration does not imply a certain level of skill or training. Summit Financial Consulting Investment Advisor Representatives do not render tax, legal, or accounting advice. Insurance products and services are offered through Summit Financial Consulting, LLC. Note: Please update Summit Financial Consulting, LLC, if your investment objectives have changed or if the personal or financial information previously provided has changed. The investment advisory disclosure document that describes Summit Financial Consulting investment advisory services account is provided to you annually. Please consult Summit Financial Consulting for a copy of this document should you need an additional copy. All guarantees are subject to the claims paying ability of the issuing insurance company. Past performance cannot predict future performance. It is not possible to invest directly in an index. The Sherman Group, LLC is not associated with Summit Financial Consulting, LLC in any way, other than a research sharing partnership. Back testing is more heavily scrutinized than any other type of investment analysis because it can be updated to take advantage of past data. The algorithms and trading signals that we receive from the Sherman Group, LLC were created using back testing with the goal of creating a sustainable research process. We have reviewed data from the entire 20 year period which was mostly back tested, and have also personally reviewed the live data for the past 5 years and feel comfortable with it, but we encourage you to meet with us and ask questions so you are fully informed on what we plan to do with your investment assets at TD Ameritrade. It is important to look at fees, taxable repercussions, and trading frequency when looking at a rate of return number. There is no perfect system or research feed, and Sherman Group, LLC has had both longer term and short-term periods where they lost money. Investing involves risk, and these portfolios are no exception.