The S&P 500 Index historically has performed better during the May-through-October period when it has started above its 200-day moving average. Long considered the worst six-month period of the year, it’s known universally as the time to “sell in May and go away.” However, since the S&P 500 started this historically weak period above the 200-day moving average this year, it could be a good sign for the typically volatile summer months. It doesn’t mean there won’t be volatility (we think there will be), but it could suggest a large sell-off likely isn’t in the cards.
While the S&P 500 snapped a three-day winning streak on May 9, it had traded within a 1.0% range for 10 consecutive trading days, the smallest range in 37 years! This can be viewed as a sign that strong corporate earnings and steady economic data is offsetting political headlines and falling commodity prices. In addition, correlations have declined, making it difficult for broader market moves. Essentially, it appears stocks are delivering exactly what was priced in earlier this year. And while bond proxies are showing weakness, real estate investment trusts (REITs) are at a three-year relative low to the S&P 500 and utilities are also seeing relative performance erode.
The recent firing of FBI Director Comey has exacerbated concerns about the delayed tax reform timetable, however, the ongoing healthcare reform roller coaster has already led to heightened concerns about the tax reform timetable getting pushed further out into 2018 and potentially running into the mid-term election campaign season. We continue to think stimulus will be enacted, especially in regard to energy infrastructure that does not rely on congressional approval, but the odds of a spring 2018 ETA (rather than December 2017) for tax reform have increased.
Sell in May? The well-known axiom is based on performance, justifiably so, but technicals suggest this year could be different. This historically weak period could be a buying opportunity in 2017.
Investment advice offered through Planned Financial Services, a Registered Investment Advisor.
