Each year toward the end of April and start of May, 24/7 Wall St. gets ahead of the summer doldrums and reviews how likely or serious a “Sell in May and Go Away” trend might be. In 2014, the impetus for a panic sell was just not there at the start of May. At the same time, there is not any serious reason that you should entirely ignore the “Sell in May and Go Away” theme.
Over this last weekend, 24/7 Wall St. outlined why rate hikes could come sooner than expected. Now we have had two more Fed presidents discuss this as well, with Dudley saying it was dependent upon the economy and Plosser hinting that rate hikes could come sooner than expected. The impact was felt in the markets. The DJIA hit an all-time high of 16,735.51 on May 13 – but on Tuesday the DJIA fell to 16,350. While that drop is not massive in the grand scheme of things, that is the low of the month of May.
Another all-time high had been seen in the S&P 500 Index. That high was 1,902.17 on May 13, and now the S&P was back down to 1,870 on Tuesday. The low for the month is down at 1,859.79.
It is not unusual at all to see the DJIA and S&P 500 have different readings in performance throughout the year or over a certain period of time. What really stood out though was that the ten-year Treasury went from 2.70% at the start of may down to under 2.50% as smart money figured out that the growth was coming in light.
These are some of the other observances that are acting against the growth story (stocks):
- Bond yield trends going down, indicating more growth risks and growing concern;
- Fed presidents starting to talk about sooner rather than later for rate hikes;
- Corporate earnings dominated by cost cuts rather than real revenue and earnings growth;
- Dividend hikes lower in terms of percentage hikes in 2014 over 2013 – likely due to cost cuts driving earnings;
- High P/E multiples in market leaders in DJIA and S&P;
- Continued uncertainty that Russia and Ukraine skirmishes are over;
- Weak Housing data;
- Weak Retail Sales data;
- Hangover of only 0.1% GDP growth in the first quarter;
- Key hedge fund managers warning to be less long;
- Lack of market participation in the banks and financials;
- Continued concerns in China and Europe;
- Recent highs in defensive utilities;
- Food inflation and drought condition fears;
- Heavy insider selling of late by corporate executives;
- Weak international trade data from individual companies;
- and a slowing of the IPO floodgates.
You know the negatives now, or at least some of them. We skimmed over many issues but there are some positives as well. These would include the following:
- Fed presidents talking up or maintaining growth;
- More perceived working-together out of Washington D.C.;
- Appetite for corporate M&A is strong;
- Companies becoming more ‘activist sensitive’ in corporate governance;
- India gets that capitalists and pro-growth party back in;
- Bounce in emerging market stocks;
- Ukraine now in the news for a week;
- and Dow Theory holding up with Dow Jones Transportation Average better than DJIA.
Again, creating a panic picture doesn’t fit the bill for this May. At least not yet. The problem is also that the great bull market story of 2013 and before seems to have mutated into a stock picker’s market.
So, tell us what you think for 2014:
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