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Don't Sell in May, Consider 5 Strong Buy ETFs Instead
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Wall Street has seen a wobbly start to May 2023 much in line with the old adage, “sell in May and go away,” after a subdued April. The regional banking crisis in the United States resurfaced at the end of April. In April, the S&P 500 had gained a muted 1.5% past month, the Dow Jones has added about 2.5%, the Nasdaq is up only 0.04% and the Russell 2000 has lost about 1.9%, respectively.
Still-hot inflation, the resultant moderately-hawkish Fed cues, the Russia-Ukraine war and the resultant upheaval in the investment world, high commodity prices and regional banking crisis, broad-based layoffs in the corporate world have been bothering the investment world. Global growth worries are rife now.
Should You Go by the “Sell in May” Saying?
Probably not. Things are different this year, with the world experiencing one of the worst crises. Recessionary fears and banking failures are quite bothersome. So, walking along the regular path won’t make you profitable this time. Let's delve a little deeper.
The proverb is ingrained in the S&P 500’s awful historical run for the May-to-October period. May has been a subdued month with average gains of 0.09% since 1950. Per EquityClock, the S&P 500 has added about 0.4% on average in May and the frequency of gains is 70%. But the saying hasn’t held well in recent times.
Per an article published on CNN.com, the proverb proved itself wrong in the past few years, with the May-October period turning pretty profitable. This year, the market has been performing decently after one of worst performances in years in 2021.
The speculation of less-hawkish Fed is baked in the current Wall Street valuation. China has reopened its economy. After layoffs, corporate earnings have come up decent enough. Big techs have been making a comeback helped the tailwinds from the interest rate backdrop and new ventures like AI and metaverse. Consumer savings are still decent despite high price inflation.
Against this backdrop, we highlight a few ETFs that could shower gains on investors in an otherwise defamed May.
Over the past decade, anemic growth in developed economies and subdued bond yields have kept value investing at bay, leading to a boost in growth stocks. However, the scenario has now reversed as the value sector performs better in a higher rate environment.
With high long-term bond yields, growth stocks that rely on easy borrowing for superior growth and future earnings suffer as their present value decreases. During the pandemic peak, value stocks faced significant challenges. However, with the ebbing pandemic, now is the time for value stocks and ETFs to thrive, with their beaten-down valuations presenting new opportunities for investors.
The underlying S&P 500 High Dividend Index is designed to measure the performance of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield. The fund charges 7 bps in fees and yields 4.50% annually.
This high dividend yield makes them good picks as the yield beats the current benchmark Treasury yields. Even if the fund ends up seeing capital losses by chance, high dividend will go a long way to make up for the losses.
The latest U.S. GDP print for the first quarter of 2023 indicated that the personal saving rate—personal saving as a percentage of disposable personal income—came in at 4.8% compared with 4.0% in the fourth quarter of 2022. This happened despite an uptick in inflation. Households may be using their extra savings more cautiously due to worries about the recession.
Disposable personal income increased 12.5% in the first quarter, compared with 8.9% in the fourth quarter. Real disposable personal income rose 8.0% in the first quarter, compared with a rise of 5.0% in the fourth of 2022. This indicates that consumers still have pricing power and they are quite able to splurge on consumer items.
Big banks are in the sweetest spot right now as decent household savings rule out the fear of delinquencies or default on loans should there comes a recession. In any case, banking is an undervalued sector currently. Failures of regional banks have helped big banks thrive even more as maximum deposits were channelized to big banks. Chances of steepening yield curve in the coming months is another plus for the banking stocks.
The tech sector is back with a bang this year due to a decline rates. The latest surge of AI, robotics and metaverse has also been benefitting some specific corners of the tech sector. One such corner is software. Software plays an integral role in how companies manage and process information. Thanks to software, numerous industries have been automated and digitized, resulting in improved productivity and efficiency. So, the space is here to stay and thrive.
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Don't Sell in May, Consider 5 Strong Buy ETFs Instead
Wall Street has seen a wobbly start to May 2023 much in line with the old adage, “sell in May and go away,” after a subdued April. The regional banking crisis in the United States resurfaced at the end of April. In April, the S&P 500 had gained a muted 1.5% past month, the Dow Jones has added about 2.5%, the Nasdaq is up only 0.04% and the Russell 2000 has lost about 1.9%, respectively.
Still-hot inflation, the resultant moderately-hawkish Fed cues, the Russia-Ukraine war and the resultant upheaval in the investment world, high commodity prices and regional banking crisis, broad-based layoffs in the corporate world have been bothering the investment world. Global growth worries are rife now.
Should You Go by the “Sell in May” Saying?
Probably not. Things are different this year, with the world experiencing one of the worst crises. Recessionary fears and banking failures are quite bothersome. So, walking along the regular path won’t make you profitable this time. Let's delve a little deeper.
The proverb is ingrained in the S&P 500’s awful historical run for the May-to-October period. May has been a subdued month with average gains of 0.09% since 1950. Per EquityClock, the S&P 500 has added about 0.4% on average in May and the frequency of gains is 70%. But the saying hasn’t held well in recent times.
Per an article published on CNN.com, the proverb proved itself wrong in the past few years, with the May-October period turning pretty profitable. This year, the market has been performing decently after one of worst performances in years in 2021.
The speculation of less-hawkish Fed is baked in the current Wall Street valuation. China has reopened its economy. After layoffs, corporate earnings have come up decent enough. Big techs have been making a comeback helped the tailwinds from the interest rate backdrop and new ventures like AI and metaverse. Consumer savings are still decent despite high price inflation.
Against this backdrop, we highlight a few ETFs that could shower gains on investors in an otherwise defamed May.
Top-Ranked ETFs in Focus
SPDR Portfolio S&P 500 Value ETF (SPYV - Free Report) ) – Zacks Rank #1 (Strong Buy)
Over the past decade, anemic growth in developed economies and subdued bond yields have kept value investing at bay, leading to a boost in growth stocks. However, the scenario has now reversed as the value sector performs better in a higher rate environment.
With high long-term bond yields, growth stocks that rely on easy borrowing for superior growth and future earnings suffer as their present value decreases. During the pandemic peak, value stocks faced significant challenges. However, with the ebbing pandemic, now is the time for value stocks and ETFs to thrive, with their beaten-down valuations presenting new opportunities for investors.
SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) ) – Zacks Rank #1
The underlying S&P 500 High Dividend Index is designed to measure the performance of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield. The fund charges 7 bps in fees and yields 4.50% annually.
This high dividend yield makes them good picks as the yield beats the current benchmark Treasury yields. Even if the fund ends up seeing capital losses by chance, high dividend will go a long way to make up for the losses.
Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) ) – Zacks Rank #1 (Strong Buy)
The latest U.S. GDP print for the first quarter of 2023 indicated that the personal saving rate—personal saving as a percentage of disposable personal income—came in at 4.8% compared with 4.0% in the fourth quarter of 2022. This happened despite an uptick in inflation. Households may be using their extra savings more cautiously due to worries about the recession.
Disposable personal income increased 12.5% in the first quarter, compared with 8.9% in the fourth quarter. Real disposable personal income rose 8.0% in the first quarter, compared with a rise of 5.0% in the fourth of 2022. This indicates that consumers still have pricing power and they are quite able to splurge on consumer items.
Financial Select Sector SPDR ETF (XLF - Free Report) ) – Zacks Rank #1
Big banks are in the sweetest spot right now as decent household savings rule out the fear of delinquencies or default on loans should there comes a recession. In any case, banking is an undervalued sector currently. Failures of regional banks have helped big banks thrive even more as maximum deposits were channelized to big banks. Chances of steepening yield curve in the coming months is another plus for the banking stocks.
iShares Expanded Tech-Software Sector ETF (IGV - Free Report) ) – Zacks Rank #1
The tech sector is back with a bang this year due to a decline rates. The latest surge of AI, robotics and metaverse has also been benefitting some specific corners of the tech sector. One such corner is software. Software plays an integral role in how companies manage and process information. Thanks to software, numerous industries have been automated and digitized, resulting in improved productivity and efficiency. So, the space is here to stay and thrive.