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What "Sell in May"? 5 ETFs That Could Defy the Adage
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Wall Street has just seen the worst month of 2024. All three key U.S. equity gauges fell at least 3% last month. After a brutal April, Wall Street has stepped in the defamed May. Defamed because there is an old adage, “sell in May and go away.” Now with April turning out downbeat, Wall Street will be striving hard to make an ascent in May, but the operating environment is not all smooth this time around.
Sticky inflation, the resultant hawkish Fed cues, geopolitical tensions in the Middle East and East Europe, supply-chain woes and high commodity prices have been bothering the investment world. Global growth worries are rife now.
Should You Go by the “Sell in May” Saying?
Probably not. But then, things are a bit tricky this year, with the world likely to be experiencing a stagflation-like scenario. 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. So far this year, the market has performed decently, if we rule out April’s upheaval.
Currently, there are mixed cues in the market. On one hand, persistent inflation has been keeping the Fed from being dovish. On the other hand, downbeat economic data points suggest something else. Consumer confidence fell sharply in April as inflation worries and a downbeat outlook on the job market pushed optimism back to its lowest level since 2022. This indicates that the Fed’s policy easing is needed soon.
Meanwhile, the U.S. employment cost index, which measures compensation and benefits, rose 1.2% from December to March — the highest increase in a year — after rising 0.9% at the end of 2023. Rising wages can weigh on companies’ margins.
Hence, if the U.S. economy starts coming up with back-to-back downbeat releases that can trigger economic woes, the timing of the Fed’s rate cut bets may come forward. Against this backdrop, we highlight a few ETFs that could shower gains on investors in an otherwise defamed May.
Since a hawkish Fed rhetoric caused a rally in long-term rates, ETFs that give shelter against rising rates should gain in value. The benchmark U.S. treasury yields started April at around 4.33%, hit a high of 4.70% and ended the month at 4.69%. We do not expect the yields to come down fast even if the Fed comes up with little dovish comments. As a result, ETFs that offer protection against rising rates deserve a look.
Aerospace & Defense ETFs have been steady lately despite market woes. The sector still holds strength and has the potential to stay steady in the coming days. Continued geopolitical tension and increase in defense budget, rising merger and acquisition activities and cheaper valuation are tailwinds for the sector. The fund PPA, in fact, remained in the green in April (read: Aerospace & Defense ETFs at a 52-Week High: Here's Why).
The Japanese stocks have been in great shape this year. Years of easy money policy, a stable political environment and the late prime minister Shinzo Abe’s fiscal policy "Abenomics" have contributed to the rejuvenation of Japan's equity markets. There have been notable increases in dividends, share buybacks, and reduction in cross-shareholdings.
The recent decision by the Bank of Japan to raise interest rates, ending years of negative rates, signifies Japan's departure from its deflationary past. Warren Buffett is also bullish on Japan investments. The yen's depreciation to a multi-year low against the dollar has provided a boost to Japanese exporters, enhancing their sales and profitability.
“New normal” trends like work-and-learn-from-home and online shopping, increasing digital payments and growing video streaming are sure to stay even if the pandemic ebbs. The growing adoption of cloud computing, and the ongoing infusion of AI, machine learning and IoT are the other winning areas. The AI arena is blazing hot.
There are chances of the Fed slashing rates from late 2024, an easing activity, which should gather momentum in 2025. Hence, one can try exploring tech ETF XLK on the recent dip. The fund lost about 5% in April (read: Forget Meta-Led Slump: 3 Reasons to Buy Tech ETFs on the Dip).
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 4.56% annually. This high dividend yield makes them good picks. Even if the fund ends up seeing capital losses by chance, a high dividend will go a long way in making up for the losses.
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What "Sell in May"? 5 ETFs That Could Defy the Adage
Wall Street has just seen the worst month of 2024. All three key U.S. equity gauges fell at least 3% last month. After a brutal April, Wall Street has stepped in the defamed May. Defamed because there is an old adage, “sell in May and go away.” Now with April turning out downbeat, Wall Street will be striving hard to make an ascent in May, but the operating environment is not all smooth this time around.
Sticky inflation, the resultant hawkish Fed cues, geopolitical tensions in the Middle East and East Europe, supply-chain woes and high commodity prices have been bothering the investment world. Global growth worries are rife now.
Should You Go by the “Sell in May” Saying?
Probably not. But then, things are a bit tricky this year, with the world likely to be experiencing a stagflation-like scenario. 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. So far this year, the market has performed decently, if we rule out April’s upheaval.
Currently, there are mixed cues in the market. On one hand, persistent inflation has been keeping the Fed from being dovish. On the other hand, downbeat economic data points suggest something else. Consumer confidence fell sharply in April as inflation worries and a downbeat outlook on the job market pushed optimism back to its lowest level since 2022. This indicates that the Fed’s policy easing is needed soon.
Meanwhile, the U.S. employment cost index, which measures compensation and benefits, rose 1.2% from December to March — the highest increase in a year — after rising 0.9% at the end of 2023. Rising wages can weigh on companies’ margins.
Hence, if the U.S. economy starts coming up with back-to-back downbeat releases that can trigger economic woes, the timing of the Fed’s rate cut bets may come forward. Against this backdrop, we highlight a few ETFs that could shower gains on investors in an otherwise defamed May.
ETFs in Focus
Global X Interest Rate Hedge ETF (RATE - Free Report)
Since a hawkish Fed rhetoric caused a rally in long-term rates, ETFs that give shelter against rising rates should gain in value. The benchmark U.S. treasury yields started April at around 4.33%, hit a high of 4.70% and ended the month at 4.69%. We do not expect the yields to come down fast even if the Fed comes up with little dovish comments. As a result, ETFs that offer protection against rising rates deserve a look.
Invesco Aerospace & Defense ETF (PPA - Free Report) – Zacks Rank #2
Aerospace & Defense ETFs have been steady lately despite market woes. The sector still holds strength and has the potential to stay steady in the coming days. Continued geopolitical tension and increase in defense budget, rising merger and acquisition activities and cheaper valuation are tailwinds for the sector. The fund PPA, in fact, remained in the green in April (read: Aerospace & Defense ETFs at a 52-Week High: Here's Why).
iShares Currency Hedged MSCI Japan ETF (HEWJ - Free Report) – Zacks Rank #2
The Japanese stocks have been in great shape this year. Years of easy money policy, a stable political environment and the late prime minister Shinzo Abe’s fiscal policy "Abenomics" have contributed to the rejuvenation of Japan's equity markets. There have been notable increases in dividends, share buybacks, and reduction in cross-shareholdings.
The recent decision by the Bank of Japan to raise interest rates, ending years of negative rates, signifies Japan's departure from its deflationary past. Warren Buffett is also bullish on Japan investments. The yen's depreciation to a multi-year low against the dollar has provided a boost to Japanese exporters, enhancing their sales and profitability.
Technology Select Sector SPDR ETF (XLK - Free Report) – Zacks Rank #2
“New normal” trends like work-and-learn-from-home and online shopping, increasing digital payments and growing video streaming are sure to stay even if the pandemic ebbs. The growing adoption of cloud computing, and the ongoing infusion of AI, machine learning and IoT are the other winning areas. The AI arena is blazing hot.
There are chances of the Fed slashing rates from late 2024, an easing activity, which should gather momentum in 2025. Hence, one can try exploring tech ETF XLK on the recent dip. The fund lost about 5% in April (read: Forget Meta-Led Slump: 3 Reasons to Buy Tech ETFs on the Dip).
SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) – Zacks Rank #2 (Buy)
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 4.56% annually. This high dividend yield makes them good picks. Even if the fund ends up seeing capital losses by chance, a high dividend will go a long way in making up for the losses.