There are a lot of market trends and aphorisms that just don’t seem to be working this year. The Spring Rally sagged in returns. February delivered the worst point drop in history to the Dow Jones Industrial Average. The saying, “As January goes, so goes the year” hasn’t played out so far.
So, should you flip the “Sell in May” saying on its head, and hold on for more gains?
By the Numbers
Since 1999, whenever the Spring Rally produces negative returns, May performs better. When the losses are lackluster (as they were in 2015), so are the returns. When the losses are more pronounced (as they were in 2005), the May Rally tends to be more robust.
In 2018, the Spring Rally saw market losses of about -1% (February was worse). So, if May follows the recent trend, the month should be in the black.
There is another trend worth noting, however. In recession years, May was only a brief reprieve before severe losses. The Great Recession saw losses of 55% in the Dow Jones Industrial Average between Oct. of 2007 and March of 2009. The NASDAQ Composite Index dropped 78% between the high of March 2000 and the low of October 2002. We’re courting the 10th year of the current bull market, and many of the economic indicators are more troubling than they were in 2000 or 2008.
And here is more information on each trigger.
1. GDP Growth
The 1st quarter 2018 GDP growth numbers were 2.3%. This is much lower than the 3% growth rate that the Administration has been projecting, and much lower than China’s 7.7%. But it’s still growth. These numbers should hold steady through the end of June. On July 27, 2018, the 2nd quarter 2018 GDP growth advance estimate will be released. The current prediction is that 2Q 2018 growth will come in between 3-4%. If that is the case, then summer should be breezy on Wall Street – unless that prompts another interest rate hike. (The estimates have tended to start high and then be revised downward.) The GDP growth for 2018 is predicted to come in at 2.7%.
2. Interest Rates
The Fed Fund rate is currently 1-1/2 to 1 3/4 percent. By the end of the year, it should be at 2.1%, with an increase to 2.9% by 2019 and 3.4% by 2020. In other words, interest rates are predicted to be double where they are right now in just two years. Two more rate hikes are on tap for this year. Since the Feds are aware that the stock market has been going down when they raise rates, I’d bet on a rate hike on August 1, 2018 (when Wall street is on vacation). The June 12-13, 2018 meeting might be another pass, helping stocks to stay afloat for now. One last note on interest rates. Pundits say that interest rates are rising because the economy is doing so well. Insiders know that interest rates are rising because the Federal Reserve needs to be able to lower them again when the next recession hits, and to stop the bubbles in stocks and bonds. In fact, the projections are that GDP growth will drop from 2.7% projected this year, to 2.4% in 2019 and 2.0% in 2020, at the same time that the Federal Funds interest rate will double.
There are so many astonishing world events going on that Wall Street has become rather numb to even heartbreaking occurrences that used to roil trading. There is more market reaction to a hike in interest rates than to a school shooting or a White House executive exodus. However, all it took was one Alan Greenspan quote on Bloomberg TV to spark the largest point-drop in the Dow Jones Industrial Average in history, and knock the Consumer Sentiment Index (the “VIX) out of a slumber and into tailspin.
Stocks are at an all-time high. Real estate is at an all-time high, and has become unaffordable in many cities for 90% of the people who work and live there. As interest rates rise, the buying pool will become even narrower.
Alan Greenspan said bluntly on January 31, 2018, “We have a stock market bubble, and we have a bond market bubble.” Warren Buffett has $100 billion on the sidelines because “Stocks have gotten less attractive,” and “You are paying 45 times earnings when you buy a bond.” Nobel Prize winning economist and Yale professor of economics Robert Shiller says, “The only time in history going back to 1881 when [stock prices] have been higher are, A: 1929 and B: 2000. We are at a high level, and its concerning. People should be cautious now.”
1929 was before the Great Depression. 2000 was the Dot Com Recession, when the NASDAQ Composite Index lost 78% of its value. It took 15 years for the NASDAQ to crawl back to even.
Debt in the developed world has gone astronomical. The U.S. public debt is over $21 trillion. Consumer debt is over $13 trillion, with $1.4 trillion in student loans. Rising interest rates will have an adverse affect on all of this.
6. August: Toxic News Dumping Ground
August is the time when most insiders want to dump their bad news – when all of the Wall Street bankers and analysts are on vacation. When Standard and Poor’s decided to downgrade the U.S. credit, it was a Friday in August at 5:05 pm ET (8.5.11).
Nest Egg Vs. Trading
Rebalancing Time For Your Nest Egg
The bottom line is that now is an excellent time to rebalance your nest egg (401k, IRA, etc.). If you are unsure how to do this, consider getting a second opinion. Call 310-430-2397 to learn more. It’s never a good idea to market time and jump all in or all out in your nest egg. A balanced plan is well-diversified, keeps enough safe, adds in hot industries and rebalances 1-3 times a year.
Take Your Profits Early and Often
In your trading portfolio, where you take on higher risk for higher gain, my mantra would be “take my profits early and often.” You can probably make a lot more trading around the core than you can in hanging on for too long.
If you are interested in learning the ABCs of Money that we all should have received in high school, in saving thousands annually in your budget and in getting an unbiased second opinion on your current budgeting and investing strategy, email info @ NataliePace.com or call 310-430-2397.
About Natalie Pace:
Natalie Wynne Pace is the co-creator of the Earth Gratitude project and the author of the Amazon bestsellers The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is (aka You Vs. Wall Street). She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical).
Natalie Pace is a top-ranked blogger for Thrive Global (Arianna Huffington's newest platform) and Medium, a repeat guest on national TV and radio shows such as CNBC, Good Morning America, Fox, ABC-TV, Forbes.com, NPR and more and a popular, engaging speaker at major conferences. As a strong believer in giving back, she has been instrumental in raising millions for public schools, financial literacy, the arts and underserved women and girls worldwide. Her sustainability tips have helped companies, organizations and individuals to save tens of thousands every year in their annual budget with smarter energy, budgeting and investing choices.
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.