Today is the last day of the statistically cursed month of May (sorry May flowers). The S&P 500 has moved lower 6 of the last 7 years from its close on May 31st over the next month or so. Another statistic to ponder is the fact that 2013’s year to date gains are the most we have seen in 13 years with the exception of 2009; this increases the perception that markets are overbought.
While S&P valuations are far from astronomical, trailing multiples are right around where they were in 06-07 and forward 12 month projections are also where they were in early 2006.
The question now is whether the economy can extend its current 4 year growth cycle that has been largely aided by QE or if we have reached the apex of this current growth cycle.
More important is what market participants truly believe will come of earnings and the Fed by the end of the year, as they are the determinants of market direction.
To take things even a step further, we could be just a couple months away from the end (or beginning of the end) of unprecedented government stimulus and accommodation that has been present since 2009. Since the advent of TARP and other programs designed to prop up our economy, the stock market hasn’t yet experienced a decline in the amount of stimuli (terms have been lengthened, augmented or expanded).
Given the precarious state of the economy along with the statistical information I have been presented with, I would say that there is an 85% probability that markets will be lower on August 1st compared to where they are today. Beyond that, it all depends on the Fed and global economic health…Earnings trajectories certainly don’t support much of a move higher.
I say “Sell in May!”
How about you?!
(What do you think the market will do for the next 2-3 months?)
a.Sell in May and go away; markets are moving lower
b.Sell in May, but buy the big dips; there will be a quick recovery
c.Buy no matter what because we are still moving higher
d.Don’t buy or sell’ stocks will be relatively flat for the next few months
e.Other – Please explain