“Sell in May and go away” hasn’t been the best way to divest in 2016. The old Wall Street saying was good advice to follow for the first 17 days of the month, where the S&P 500 dropped by about 1.6% in value. Since then though, the index has picked up over 2%, netting a gain of about 0.7% for May as a whole. This return for the month may not seem significant, but the positive momentum in the latter half of the month may suggest that there are better days ahead for US stocks over the short term.
On the 18th of May, Fed minutes revealed that the Federal Reserve was gaining confidence in the economy. If unemployment stays low, the economy keeps improving, and inflation continues to rise, then the Fed will be open to raising interest rates sooner than later. A rate hike means that there will be less liquidity in the market. At the same time, the possibility of a looming rate hike shows that the Fed is confident in the strength of the economy. This helps to boost sentiment among investors.
Weekly jobless claims have helped in bolstering confidence regarding the state of the domestic economy. For the weeks ended May 14 and May 21, jobless claims came in well below expectations. Weekly jobless claims have been below 300,000 for 64 months straight, according to CNBC.com. This marks a streak which hasn’t been matched since 1973.
An increase in corporate profits has also helped to bring stocks higher for the second half of May. This is largely due to the stabilization of commodity prices, which has been driven by the rise in oil prices. The commodity is now trading for close to $50 per barrel. This is a significant improvement compared to the beginning of 2016, where oil was seen trading for under $30 per barrel.
Many commodity futures such as copper, cocoa, corn, and cotton have experienced a price surge in May. Investors have been worried about unsustainable commodity prices, so the much-needed price boost may help in easing market volatility on an international level, since many developing nations are dependent on commodity exports.
The percentage returns on the 11 sectors tracked by SPDR ETFs over the last month are charted below.
Bottom Line:
Although there are many economic concerns at the global level, there is evidence supporting the notion that the US economy is on solid ground. If this turns out to be true, then it may be in your best interest to invest in US companies with minimal exposure to global volatility. The looming Brexit vote may be a catalyst that determines where the global economy is headed from here. Chinese exports are also worth keeping an eye on, as the country is the largest contributor towards global GDP growth.
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Here's Why "Sell in May and Go Away" Didn't Work in 2016
“Sell in May and go away” hasn’t been the best way to divest in 2016. The old Wall Street saying was good advice to follow for the first 17 days of the month, where the S&P 500 dropped by about 1.6% in value. Since then though, the index has picked up over 2%, netting a gain of about 0.7% for May as a whole. This return for the month may not seem significant, but the positive momentum in the latter half of the month may suggest that there are better days ahead for US stocks over the short term.
On the 18th of May, Fed minutes revealed that the Federal Reserve was gaining confidence in the economy. If unemployment stays low, the economy keeps improving, and inflation continues to rise, then the Fed will be open to raising interest rates sooner than later. A rate hike means that there will be less liquidity in the market. At the same time, the possibility of a looming rate hike shows that the Fed is confident in the strength of the economy. This helps to boost sentiment among investors.
Weekly jobless claims have helped in bolstering confidence regarding the state of the domestic economy. For the weeks ended May 14 and May 21, jobless claims came in well below expectations. Weekly jobless claims have been below 300,000 for 64 months straight, according to CNBC.com. This marks a streak which hasn’t been matched since 1973.
An increase in corporate profits has also helped to bring stocks higher for the second half of May. This is largely due to the stabilization of commodity prices, which has been driven by the rise in oil prices. The commodity is now trading for close to $50 per barrel. This is a significant improvement compared to the beginning of 2016, where oil was seen trading for under $30 per barrel.
Many commodity futures such as copper, cocoa, corn, and cotton have experienced a price surge in May. Investors have been worried about unsustainable commodity prices, so the much-needed price boost may help in easing market volatility on an international level, since many developing nations are dependent on commodity exports.
The percentage returns on the 11 sectors tracked by SPDR ETFs over the last month are charted below.
Bottom Line:
Although there are many economic concerns at the global level, there is evidence supporting the notion that the US economy is on solid ground. If this turns out to be true, then it may be in your best interest to invest in US companies with minimal exposure to global volatility. The looming Brexit vote may be a catalyst that determines where the global economy is headed from here. Chinese exports are also worth keeping an eye on, as the country is the largest contributor towards global GDP growth.
The Zacks Rank is a truly marvelous trading tool. Our ranking system has beaten the S&P 500, yielding an average return of 25% per year for the last 29 years! Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>