As we reach the end of May, I was thinking of the old trading adage "sell in May and go away," or the recommendation to sell stocks in May and buy them back in November, therefore avoiding the historic volatility that has occurred in the June to October period. Since 1950, the Dow Jones Industrial Average has returned 0.3% during the May to October period versus 7.5% in the November to April period.
In my opinion this adage has a high probability of being incorrect this year. There are four factors that support holding stocks during this period:
- Earnings have been strong and will likely continue.
- U.S. economic growth continues to chug along.
- The Federal Reserve (Fed) is likely to remain accommodative despite likely increasing rates in June.
- Another old adage, "the trend is your friend," which underscores the market tends to grind higher without a significant event to shift the paradigm.
In the week ahead, I will be looking closely at the May employment number, the Institute for Supply Management (ISM) manufacturing gauge and last month’s auto sales data. I believe the data will support the continued growth in the economy, and I am interested to see if the wage figures in the employment data shows any pickup in wage pressures.
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