Markets, Economy

Weekly Kickstart (05/09/2016-05/13/2016)

5/9/16 8:00 AM

iStock_000000499785_Small-1Stocks headed lower last week, with the S&P 500 losing 0.40 percent. This was a disappointing start to the new month which left the benchmark index up only 0.65 percent 2016-to-date and 3.46 percent below the all-time high hit roughly a year ago. For some traders, last week’s selloff was simply the beginning of the proverbial practice of “sell in May and go away,” where it is believed 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 Bank of America Merrill Lynch. 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 63.6 percent of the time since 1928, with average and median returns 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 27 of the past 36 years. Moreover, persistent participation in the stock market, along with dollar-cost averaging, can help investors turn large drawdowns into opportunities and in turn better prepare them for a financially secure retirement. As always, we are here to help with any questions you may have.


To recap what we learned about the economy last week, the positives included that the U.S. trade deficit narrowed, consumer borrowing surged, motor vehicle sales jumped, small business job creation firmed, labor market confidence improved, factory orders growth lifted, activity in the services sector continued to rebound, and workers’ average hourly earnings increased. As for the negatives, mortgage and refinance applications declined, construction spending cooled, activity in the manufacturing sector expanded at a slower rate, U.S. productivity growth in the first quarter remained sluggish, consumer sentiment softened, corporate layoff announcements spiked, the number of Americans making first-time claims for unemployment benefits climbed to a 5-week high, and overall payroll growth in this country moderated. This week the pace of economic data slows down considerably but there are still several important reports on retail sales, consumers, and employment scheduled to be released, along with the latest reading on small business owner sentiment from the National Federation of Independent Business (NFIB) due out tomorrow morning.


What To Watch:









Sources: Econoday, Bloomberg, Twitter, BofAML, WSJ, FRBG, FactSet, et al

Post author: Charles Couch