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: https://finance.yahoo.com/quote/%5EGSPC?p=^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 firstname.lastname@example.org 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.
“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
Disclosures regarding our performance reporting: Because some clients are in the 10% tax bracket and others are in the 37% Federal tax bracket, we have decided to report performance before taxes. If you have a non-qualified account, please feel free to contact us to determine your individualized rate of return after tax. All of Summit’s performance is after our 1.25% advisory fee that is deducted monthly. Your fees may be higher or lower depending upon the amount of assets invested with our firm. Feel free to contact us to receive online access so you can see your personalized rate of return. The Aggregate bond index we use is ticker: AGG. All dividends and distributions are reinvested and included in the performance. The S&P 500 index quoted above does not include dividends within the performance. If a holding within our portfolio does pay a dividend or other income, it is reinvested, so our performance does include dividends. This report has been prepared from data believed reliable, but no representation is made as to accuracy or completeness. Total return and principal value will vary depending upon the deduction of advisory fees, brokerage commissions, reinvestment of dividends and other earnings or fund charges. This information is provided to you in combined form, solely for your convenience and ease of review and is not an offer or solicitation to buy or sell any securities. In order to verify that all account values and transactions are accurate, we encourage you to compare the information provided in our statement with the statement you receive directly from your custodian. All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Past performance does not guarantee future results.