With Economy Stalling, Time to Sell in May and Go Away?

Should you follow the old Wall Street adage to “Sell in May and Go Away”? You might be tempted to do so, especially with economic growth crawling at a measly 0.5 percent annualized pace in the first quarter, consumer spending decelerating for the past nine months and corporate earnings on track for a third consecutive quarter of declines—the longest streak since the financial crisis. 2016 has been a year of investor anxiety, starting with a swift Jan-Feb 10 percent stock market correction. Now that indexes have clawed their way higher, many are worried that something ominous is brewing for the summer. This week’s employment report could either fan the fear flames or tamp them down. Analysts expect that 200,000 jobs were created in April and the unemployment rate will remain at 5 percent.

If those estimates were to come in on target, they would add to the mostly upbeat data on jobs that we have seen over the past few years. According to Calculated Risk, through March, total employment was 5.3 million above the previous peak and up 14 million from the employment recession low. Last week, although the Federal Reserve did not raise interest rates, it acknowledged that since its previous meeting six weeks prior, “Labor market conditions have improved.”

But the broad numbers may not paint a true picture of the employment landscape. Steve Murphy of Capital Economics notes that there has been a surge of low paying jobs in sectors like retail and leisure, while “at the same time, employment in higher-paid sectors such as manufacturing and mining has fallen back sharply. More generally, there has been a sharp deterioration in the quality of jobs created.”

Career coach Connie Thanasoulis-Cerrachio, co-founder of SixFigureStart® says her on-the-ground-interaction with employers and candidates echoes that sentiment: “We see a tale of two [labor] markets – strong candidates have a great market. Mediocre ones are still have a hard time.” What makes a strong candidate? It helps if those seeking jobs are looking in the hot industries that are hiring, like technology, healthcare, accounting, marketing/data analytics as well as the non-profit world, which Thanasoulis-Cerrachio says is “booming”.

Even if many parts of the economy are growing and employees do eventually see an uptick in their paychecks (Capital Economics expects “to see a marked acceleration in hourly wage growth to around 3 percent by year-end”), the stock market may still stumble, due to valuations, exogenous events across the globe or plain old exhaustion, which brings us back to the original question of selling in May. According to Charles Schwab, “since 1950, nearly all of the S&P 500’s gains have occurred between October and April. The mean return during May through October was 1.3 percent; while for November through April it was 7.1 percent.”

Unfortunately, “Sell in May and Go Away” hasn’t been as reliable over the past dozen years. It didn’t work from 2012-2014, or from 2003-2007, so you may want to stick to the tried and true strategy of investing in a diversified portfolio, targeted to your specific goals. Not as catchy as “Sell in May and Go Away”, but probably a smarter way to manage your money.

MARKETS:

• DJIA: 17,773 down 1.3% on week, up 2% YTD
• S&P 500: 2065 down 1.3% on week, up 1% YTD
• NASDAQ: 4775 down 2.7% on week, down 4.6% YTD
• Russell 2000: 1130, down 1.4% on week, down 0.4% YTD
• 10-Year Treasury yield: 1.83% (from 1.9% a week ago)
• June Crude: $45.92, up 20% on month, up 75% since bottoming out in February at a 13-year low
• June Gold: $1,294.90, highest level in 15 months
• AAA Nat'l avg. for gallon of reg. gas: $2.21 (from $2.13 wk ago, $2.58 a year ago)

THE WEEK AHEAD:

Mon 5/2:

AIG

9:45 PMI Manufacturing Index

10:00 ISM Manufacturing Index

10:00 Construction Spending

Tues 5/3:

CBS, BMY

Motor Vehicle Sales

Weds 5/4:

Tesla, Lending Tree, Priceline

8:15 ADP Private Sector Employment Report

8:30 International Trade

8:30 Productivity and Costs

9:45 PMI Services Index

10:00 Factory Orders

10:00 ISM Non-Manufacturing Index

Thursday 5/5:

Alibaba, Merck, GoPro, Herbalife

Chain Store Sales

Friday 5/6:

8:30 April Employment Report

3:00 Consumer Credit