Tuesday , 18 June 2024

Which Will It Be – 63 Years of Data Suggesting A Major Pullback Over the Next 6 Months OR the Power of This Market Rally?

Last year’s “Sell in May” period was only the third time since the turn of the century that stocks have postedstockcrash-2 double-digit gains from May through October so, with stocks still near all-time highs as the calendar flips to May, do the law of averages suggest we’re on the brink of a major pullback over the next six months?

So says Chris Preston (wyattresearch.com) in edited excerpts from his original article* entitled  Can the Market Defy “Sell in May” Again?.

The following article is presented by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!)www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and the FREE Market Intelligence Report newsletter (sample here; register here) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.

Preston goes on to say in further edited excerpts:

The numbers don’t lie. The “Sell in May” phenomenon is ordinarily very real.

  • Since 1950, the average gain in the Dow Jones Industrial Average was a mere 0.3% from May 1 through October 31. From November through April, those numbers jump to +7.5%.
  • Even recent history supports the “Sell in May” theory. Over the past five years, the average gain in the S&P 500 from May through October was 3.9%. The November through April gains were almost triple that, at +11.5%.
  • The market has never posted back-to-back years of double-digit gains during the “Sell in May” period. In fact, only once since 1997 have stocks risen more than 6% in back-to-back “Sell in May” periods.

The above numbers suggest that last year’s booming “Sell in May” period, when the S&P 500 rose 10% from May to November, outpacing the six months that preceded it and the six months afterwards, was an aberration. 

Market valuation isn’t on investors’ side as we enter May either.

  • Right now, stocks are dangerously overbought. The S&P 500 is trading at 15.7 times next year’s earnings – higher than the five-year average of 13.2, and the 10-year average of 13.8.
  • It’s also the highest the S&P’s forward PE has been since 2005.
  • It’s been nearly three years since a correction of more than 10%.

The addition of the above would suggest that a major pullback is imminent but here’s the thing about this rally, though: it has defied all logic.

Countless times over the past year, Wall Street pundits have been calling for a mass correction. Each time, stocks have risen higher than ever before. Another near-default by the U.S. government, sequestration cuts taking effect, an unemployment rate that’s been slow to improve – none of it has managed to slow this rally – and those are real, tangible factors that directly impact the U.S. economy. By comparison, a seasonal phenomenon such as “Sell in May” seems like a much smaller concern for investors.


It really comes down to what you believe in more:

  • 63 years of data suggesting that it would be foolish to completely ignore history – and that history says we should expect a decline in the next six months, or
  • the power of this market rally which, time and again in the last two years,  has won out.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://www.wyattresearch.com/article/sell-in-may/ (© 2013 Wyatt Investment Research)

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One comment

  1. My feeling is that the US Dollar will lose buying power as PM’s reclaim some of their lost value, or if there is additional conflict in the World the changes in value of PM’s could easily be doubled if not more from their present value.