May 2014 Monthly Outlook – Sell in May and go away? Maybe not this year

Sell in May and go away is an old Wall Street adage based on the traditional seasonally weak period for equities between May and the end of summer. This approach worked well over the last few years as the US economy (and the financial markets) improved every spring and then weakened every summer in 2010/2011/2012/2013.  Could 2014 repeat this pattern or break the trend?

My sense is that 2014 will break the trend although it may take a month or two to know for sure.  Why do I think this?  Mostly because of what is happening in Corporate America.  As I reported last month, the level of corporate mergers and acquisitions so far this year has been very robust.  Corporate CEO’s and Board’s willingness to invest significant capital in acquiring other businesses is a clear sign they feel the economy is improving.  Supporting that position is the 1st quarter of 2014 earnings results.  While results so far are in line with anticipated levels, what is telling is that for the first time in 10 quarters (back to 2nd quarter 2011), companies are raising forward guidance.  Again, companies must feel reasonably confident about their future prospects to increase their guidance.

May 2014 Mthly Outlook chart

Coming into 2014 most financial pundits and advisors were worried more about bonds (fixed income) investments than equity investments.  This was based on the anticipation of rising interest rates fueled by the Federal Reserve Board’s announced plan to reduce the monetary stimulus they were pumping into the market.  Well lo and behold! U.S. Bonds have had their best start since 1995.

Bond yields have declined almost 0.4% y-t-d, the biggest decline for the start of a year since 1995. (source: ISI) I think this reflects a lack of conviction and high level of anxiety among investors.

Additionally, global economic growth is improving as the Eurozone economy is recovering which can be seen in these charts from International Strategy & Investment

May 2014 Mthly Outlook chart2

 

The National Bureau of Economic Research reports that the recession ended in June 2009.  This makes the current recovery the 3rd longest since World War II (source: Morningstar).  So what this recovery lacks is robustness, it makes up in longevity.  It also means the best investing approach remains to stay diversified with a long term outlook.

Hopefully you find this report helpful.  Please feel free to call me with any questions.  Also, please share this note with anyone who you feel would benefit from the information.

 

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

 

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

 

 

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