Just about every year, you know I run up the investors’ flagpole the old market maxim that goes, “Sell in May, go away, come back on St Leger’s Day”, which is around mid-September. It worked last year, despite the fact that the S&P/ASX 200 index went up in May!
S&P/ASX 200
However, from June, the market slid close to 5%. But if you got back in on St Leger’s Day on September 16, you’re now up over 6% from that day. The market actually dived until the end of October but then surged 14%!
I think the new age maxim might be “sell in May and wait for a five percent comeback for the market and get on board!” It doesn’t rhyme but it’s probably a more accurate guide for timing the market.
That said, if you’d bought in May and stayed, despite big fall from 1 August to 13 October, you would’ve made 6%. So, the only way you could have done well out of the ups and downs of 2023 if you’d been a great market timer.
But remember there’s another maxim that has stood the test of time: “Time in the market is better than trying to time the market”. Of course, that’s a great lesson for those who aren’t professionals when it comes to stocks but remember only a third of fund managers outperform the overall market, which is why passive-investing ETFs have become so popular.
Getting back to the history of the “sell in May…” strategy, Rocky White, on yahoo!finance.com, pointed out the following:
- From 1948 to now, April to October stinks for stocks with an average 1.83% return.
- Over that time. returns are positive only 66% of the time.
- November to March has an average return of 6.85% and from 1948 until now, the stock market is positive 77% of the time.
- The old belief in the “sell in May” maxim coincided with the era of no modern telecommunications. And brokers and big investors went on summer holidays in the northern hemisphere. When holidays ended, it was around the horseracing event on St Leger’s Day, which is held at the Doncaster course.
Mind you, while that great investor Warren Buffett, doesn’t dismiss history when it comes to stock playing, he has been quoted as saying: “If past history was all that is needed to play the game of money, the richest people would be librarians”.
What Buffett is really saying is that you can’t just rely on history when it comes to investing, but it can be in the mix. The fact that stock markets rise on falling interest rates is something that history tells us and one reason why I think stocks rise this year and into early 2025.
On that point, history doesn’t support the “sell in May” advice when it is a Presidential election year, as Rocky White explores. Here’s what he found captured in the table below.
But wait, there’s more from the annals of market history. “In the 11 presidential election years since 1948 in which there was an incumbent candidate, the SPX (S&P 500) averaged a 7.57% return with an impressive 91% of the returns positive,” White revealed.
While the SPX is up 10.12% year-to-date, you have to remember that an average rise can sit in the middle of small rises and big rises. And if interest rates fall this year in the US and a new President is long on promises, Wall Street could have a ripper 2024.
I’ve been arguing for some time that this year could be one where we outperform the US, though that country’s preoccupation with Artificial Intelligence (AI) and the fact it has so many global companies that could benefit from AI, I could be proved wrong.
If I’m mistaken, it will only be because of the power of lower interest rates plus AI is more impactful on US stocks compared to our stocks. We could still have a very good year, linked to a rate cut or two on top of a recovering China.
I loved this from AMP’s Shane Oliver on Friday, which I referred to in my Saturday Switzer Report. It bears repeating and here it is: “At their February low Chinese shares had fallen 45% from their 2021 high on the back of worries about the Chinese property market and economy and this left them very undervalued trading on a PE of around 10 times and under loved. Since then, they have rebounded 15%, with a recent pause giving way to a new recovery high. At this stage it’s too early to tell if it’s just a bounce or the start of a new bull market.
“But there are some positives supporting the case for more upside. While Chinese policy stimulus has been light on, the economy has been better than feared defying forecasts of a property driven collapse.
“And the strength in copper prices and the pickup in iron ore since its April low are providing some positive confirmation of possibly better conditions in China. If it does have further to go its positive for the $A, which has so far been a laggard but is looking a bit stronger lately, and for resources shares.”
Expert fund managers were interviewed by the AFR this week and many tipped tricky or choppy times ahead, but these guys and girls are often short-term players who get assessed quarterly by their customers. My positivity is inspired by eventual falling rates, a Chinese recovery, and the productivity pluses from AI.
Also, have a look at our chart of the S&P/ASX 200 index over the past five years, which clearly takes in the pandemic period.
S&P/ASX 200
On 21 February 2020 (this was the peak of our stock market before the Coronavirus ambushed us), we were at 7139. We’re now at 7749. That’s a capital gain of 8.5% over that time (or about 1.9% per annum), which is way below our average over a 10-year period which is closer to 9-10%.
BHP has a PE of 12.5, which isn’t expensive, while NAB is at 15 and JB HI-FI is also at 15. Not surprisingly, CBA is at 20 but this is a good business and would be more correctly called expensive if it was 30 plus.
A company like Tesla has a PE of 43, while Nvidia is at 74.59 but not long ago it was 89.6 and that’s expensive with a capital E!
Whether you like him or not, Joe Biden (being an incumbent President) should be good for Wall Street, even if he loses to Donald J. Trump. Either way, I’m not selling in May, but I have been building up cash to be ready to pounce if we get one of those sell-offs that tend to show up between May and October.
What would I buy? That’s next week’s story.
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