Hold In May

Virtually all of the S&P 500 companies have finished reporting 1st quarter earnings. The results were impressive, earnings grew 18% year-over-year, far exceeding analyst’s intial estimates. The rate of growth is moderating from the sharp rebounds we saw just coming out of the recession, but this is typical at this stage in the business cycle.

As we enter the summer months, the market historically experiences lower trading volumes and often lower returns. This often enforces the old stock market adage to “Sell in May and Go Away” meaning investors should exit the market during the summer months. With both economic and earnings growth rates moderating and governments across the globe struggling with high debt levels, stocks have struggled to hold their gains for the year. Investors may be tempted to follow the “sell in May” advice.

This could be a mistake this year. The economy has added over 200,000 jobs in each of the last three months, businesses are finally starting to hire again in a meaningful way. The recent decline in oil prices comes just in time for the peak summer travel season, which should help consumer spending in the coming months. Interest rates are low and will remain low for a while, helping both consumers and businesses. Companies are still forecasting 14% earnings growth for next year, and with high levels of cash, low interest rates, and an improving job market, we expect business spending to get even stronger than it has been. Throw in low inflation and stocks are looking very cheap right now at less than 13x forward earnings! All these factors should reward patient long-term investors-regardless of the month on the calendar.

If you have any questions at all please do not hesitate to call!

Have a great day!

Bob and the All Star Team