May Day!
Time to "Go Away"?
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Spring is here! There is so much to be excited about.
- We are finally getting better weather in the Northeast.
- I got to go to my first in-person sporting events in a year and both my teams won. It was the classic Philly sports double header. Phillies over Braves at 3:00 followed by a walk across Pattison Avenue to see the Sixers win at 7:00. Throw in a parking lot pretzel from a random guy selling them out of a shopping cart, and I’d argue that it was a dream day.
- The NFL draft is occurring as I speak. My Eagles upset Giants fans by trading up to swipe their coveted draft pick in Heisman Trophy winner, DeVonta Smith. So, this made me happy. (Yes, I’m aware this may be their only highlight over the next year.)
- It’s Derby Day! Although I have no money involved today, which is disappointing, I’m on record that I would’ve bet Mandaloun at 15-1. #timestamp
- The markets are trading at or near all-time highs!
Spring also brings along some major changes.
- The school year is coming to end. In my house this means a high school graduation and another kid will be moving on out.
- The New York Knicks making the NBA playoffs. This won’t be a long visit, but it’s impressive nonetheless.
- An end to earnings season and the old “Sell in May and Go Away” adage will be repeated again and again in the coming weeks. In fact, given where the market is currently trading, it’s worth taking a deeper dive into the old adage.
Sell in May…
So where exactly did this saying come from? Well, according to my friends at Investopedia ...
The phrase "sell in May and go away" is thought to originate from an old English saying, "Sell in May and go away, and come on back on St. Leger's Day." This phrase refers to a custom of aristocrats, merchants, and bankers who would leave the city of London and escape to the country during the hot summer months. St. Leger's Day refers to the St. Leger's Stakes, a thoroughbred horse race held in mid-September and the last leg of the British Triple Crown.
Fast forward to modern American times and it is more of a reference to traders packing up for the Hamptons and staying out of the markets from Memorial Day to Labor Day.
I never met any of these traders in my life, but it sure sounds like a nice life. Sign me up for this “take the entire summer off” package ASAP. I figure the “Sell in May” headline rhymes and is catchy. So this may generate views and clicks in today’s society. Isn’t that what matters anyway?
The real relevance of this adage lies in the statistics behind it. Historically, the best returns in the S&P 500 occur between the months of November - April. The worst six month stretch occurs between May - October. Hence, the sell in May adage.
Ryan Detrick, Chief Market Strategist of LPL Financial, did a great job of breaking down the numbers in his post this week. Over the past ten years, selling in May would’ve only helped you avoid two drawdowns. So if recency bias is your thing, then ignore the old adage. You can read Ryan’s post here.
What I’m Watching…
Earnings Season - After last week, we’ve seen over 180 S&P 500 companies release their quarterly earnings. Over 85% of them beat their EPS estimates. Yet, the overall market remained relatively flat. Next week the earnings docket remains active. Expect to see those companies that beat struggle to rally, and those that miss or give tepid guidance to falter.
A look at next week’s notable earnings. H/T Earnings Whispers
FAANG Stocks - Last week, Amazon, Apple and Facebook reported blow out quarters. However, reaction was mixed. Of the three, only Facebook was able to take the next leg higher on its recent uptrend. Both Apple and Amazon ripped higher after hours on the news of their quarterly reports, but neither could sustain that upward momentum.
Apple attempted to make a run back to the $140 level and old highs, but failed. Technically, the stock still has work to do and the fact that the huge earnings beat wasn't the catalyst to take it to new heights means it may take some more time.
Amazon was able to make a new all-time high, but couldn't sustain that upward momentum into the close. It still remains at the high end of its neutral range going back six months, and like Apple, may need more time to make that break higher.
Google, like Facebook, was able to continue its uptrend and push higher after its earnings report. Technically it looks and acts the best of theFAANG names and year-to- date it is the best performer of the group.
Netflix - the N in FAANG, is making me think that Nvidia should replace it in the acronym. The stock had disappointing numbers and was punished for it. It’s currently idling around $500 and stuck in the middle of its six month trading range.
Overall, Apple and Amazon are the stocks to watch in the group. The fact that they failed to break out and close at new highs may make it challenging for the S&P to take that next leg up.
Leadership - While each of the 11 key sectors in the S&P made 52 week highs in the month of April, truly shows the strength of this bull market, the recent leadership is a bit concerning. This week only the Real Estate (XLRE) sector made a new high and the Utilities (XLU) finished the week strong as well. These aren’t the ideal sectors we want to see leading the next leg up and are worth watching.
Meanwhile, Technology (XLK) and Financials (XLF) after a strong earnings season failed to make new highs. These are the sector coattails I’d prefer to ride on a continued rally.
Two weeks ago I talked to Yahoo Finance about the leadership and a possible pause as we hit this “Sell in May” period. The leadership has changed and we may soon experience that slight pause. Technically speaking, watch 4200 in the S&P and 14,000/14,200 in the Nasdaq.
Great post. And I think my horse is still running.
Awesome post, Jay. Thanks for taking the time to put it together- very much appreciated. Hope the new job opportunity is treating you well. 🙏