Stocks rebounded last week, as the S&P 500 jumped by 2.41 percent to 2,727.72, its best close since early April. That solid gain also left the benchmark index up 2.02 percent year-to-date, and just 5.05 percent below the all-time closing high. Easing geopolitical tensions and softer-than-expected inflation data helped fuel the latest run-up in equities, but some traders might have sold into the strength if they follow the old practice of “selling in May and going away.” Indeed, many long-term market participants believe that holding stocks from November through April, and then switching to cash from May through October, provides investors with higher returns and lower volatility (risk) than a traditional “buy-and-hold” strategy.
It is not surprising that this seasonal trading behavior occurs because going back to 1928, the November through April interval is the strongest 6-month period of the year in terms of performance for the S&P 500, according to a Bank of America Merrill Lynch analysis. However, simply holding cash for the other half of the year may not necessarily be an optimal strategy because the May through October period was still positive for the S&P 500 nearly two-thirds of the time since 1928, with average and median returns during the sample period of 1.96 percent and 3.18 percent, respectively. More importantly, retirement investors should really be focused on returns over longer time horizons and encouragingly, the S&P 500 has generated a positive annual return for 29 of the past 38 years. Moreover, consistent participation in tax-advantaged savings vehicles, dollar-cost averaging, and regularly consulting with a professional financial advisor can often help investors turn large drawdowns into opportunities, and in turn better prepare them for a comfortable and secure retirement.
To recap a few of the things we learned about the economy last week, the positives included that small business optimism rebounded, wholesale and household inflation pressures moderated (albeit slightly), initial jobless claims held near a half-century low, the “quits rate” rose, and the total number of job openings in America jumped to a record high. As for the negatives, mortgage and refinance applications declined, credit growth continued to cool, and more consumers reported concerns about rising prices. This week the pace of economic data remains slow but there are still a few important reports on manufacturing, housing, and retail sales scheduled to be released, along with several speeches from officials at the Federal Reserve.
**A more detailed snapshot of the U.S. economy can be found here.**
What To Watch:
- Retail Sales 8:30 AM ET
- Empire State Mfg Survey 8:30 AM ET
- Business Inventories 10:00 AM ET
- Housing Market Index 10:00 AM ET
- John Williams Speaks 1:10 PM ET
- MBA Mortgage Applications 7:00 AM ET
- Housing Starts 8:30 AM ET
- Raphael Bostic Speaks 8:30 AM ET
- Industrial Production 9:15 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- James Bullard Speaks 6:30 PM ET
- Jobless Claims 8:30 AM ET
- Philadelphia Fed Business Outlook Survey 8:30 AM ET
- E-Commerce Retail Sales 10:00 AM ET
- EIA Natural Gas Report 10:30 AM ET
- Neel Kashkari Speaks 10:45 AM ET
- 10-Yr TIPS Auction 1:00 PM ET
Sources: Econoday, BofAML, J.P. Morgan, FRBSL
Post author: Charles Couch