Every year there is a general pre-summer saying from investors: Sell in May, and go away! The idea is to miss the summer doldrums and lack of investor interest. One small problem, this market theory is very broad and general, and it often is wrong. Stocks rose in May of 2013, and managed to chug higher and higher to end the year 2013, with gains of almost 30% for the S&P 500 and about 26.5% for the DJIA.
In 2014, it seems to be an odd year for the markets. The bull market has not been ground up into burgers, with the bull market now over five years old without a real correction. Stocks keep fighting each week and month with volatility that ultimately brings new highs.
24/7 Wall St. wanted to make a primer for a “Sell in May and Go Away!” for 2014. The first thing that you will notice is that this thesis will be up for a debate regardless of which side you are on. Many things have not yet occurred that many investors expected. Interest rates have not skyrocketed. Gold did not hit $2,000. Bitcoin came back down to earth. Washington seems to be (at least temporarily) in less of a mood to fight endlessly, but it is an election year.
The 2014 primer for the “Sell in May and Go Away!” thesis is meant to represent some of the same topics in the past, but with both sides. These will also be quick hit points, and will not go on and on.
Economic readings are again showing only modest growth or mild contraction. The reports from January and February were very weak, mostly due to weather (we all hope). First-quarter GDP was a mere 0.1% gain, hardly a gain. Inflation remains well under the FOMC targets. The 6.7% unemployment rate is better than a year and two years ago, but it doesn’t feel strong yet. The bulls will say that the growth is going to be spring-loaded in the second to fourth quarters. The bears will say that the growth is pathetic for a post-recession recovery.
Corporate earnings are coming out mixed. The trend remains for strong earnings, due to cost cuts and cost containment, but without much revenue growth. Weak emerging markets remain a challenge. The bulls will say that earnings growth is ultimately all that matters. The bears will say valuations are just too high, considering how low the growth is.
Europe is again a point of geopolitical risk. Now it may just be Ukraine and Russia rather than Cyprus, Greece, Ireland, Italy and elsewhere. The peripherals are getting better, at least for now, and the focus has moved into the Ukraine. The fear of tanks and paratroopers has overtaken debt ratings of the PIIGS.
China and emerging markets were less than robust in 2013, and that remains in 2014. Growth in Brazil, China and Russia have been far less than impressive for traditional BRIC investors. India remains a wild card, and it suffered the brink of a currency meltdown in late 2013 that it is recovering from. Many strategists still worry that emerging markets do not merit the rewards for the risk that is being taken to buy into them.
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