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Sell in May and Go Away? Is the Old Stock-Market Maxim in Play?

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May 4, 2016

(Wednesday Market Open) “Sell in May and go away” is an old stock-market maxim that advocates getting out of the equity markets now to sidestep the seasonal volatility and the historical underperformance of the May-to-October period. Will the adage prove itself out this year? Or are we due for a pause, as some analysts suggest?

One day does not make a trend, but it may attract attention when seasonal quirks are in play. That may seem particularly true when everything is trading to the downside, as we saw yesterday and what it looks like at the start of trading today.

As dark as Tuesday’s session was, the markets closed off their intraday lows after weaker-than-expected manufacturing numbers out of China sent investors dashing out of risky assets. Of note, too, may be the choppiness all day of the VIX, what Wall Street refers to as its fear gauge. The VIX jumped up better than 10% at the open, quieted down a bit at the midday before rising again at the close, up at nearly 8% to 15.60. Early on Wednesday, the VIX was up better than 5% to 16.45. That’s not total risk territory yet; values below 20 are still less stressful than those at 30 and above.

Crude oil prices dropped Tuesday to $43.65 a barrel, off $1.13, or 2.5%. Prices were edging higher early today, after American Petroleum Institute (API) reported that the U.S. crude stockpile fell short of analysts’ expectations with a rise of 1.3 million barrels last week compared with a forecast of a 1.7 million barrels. The government’s report comes out later today.

The S&P 500’s (SPX) support point continues to be 2050, and though the index lost momentum Tuesday and early today, at 2044 it appears to still be sitting in a comfortable spot. All major sectors—which, remember have all advanced in Q2—fell Tuesday with energy as the biggest decliner, off 2.5%. If today’s early retreat holds, it will mark the fourth straight day of falloffs. But remember the SPX stood at 2100 at the end of April, so analysts say they don’t consider yesterday’s settling and today’s slight pullback to be something terribly concerning. At least not yet.

Were investors Tuesday maybe looking for something to trade before Friday’s all-important job numbers? An early indicator came today from ADP’s private payroll data, which showed that 156,000 jobs were added in April, lighter than the 196,000 expected. That’s one of the bigger misses from ADP since 2013, according to analysts. That may not bode well as a preview for the government figures, but Friday’s numbers are the ones that really count and the two numbers have not always been in sync.

S&P 500

FIGURE 1:A WRONG TURN?

The S&P 500 (SPX), plotted through midday Tuesday on the TD Ameritrade thinkorswim platform, retreated slightly but is still within a comfort range of its support level. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Too Big to Win? Here’s a switch: A company that’s not too big to fail, but too big to grow, according to Wall Street analysts. RBC Capital Markets initiated coverage of Wal-Mart Stores (WMT) with an “underperform.” Why? Because the massive size of WMT is not a plus but a minus because of heightened competition and the swelling interest in buying the stuff you need online. “Virtually everyone (who) was going to shop at Walmart, already shops at Walmart,” RBC analysts wrote in a bearish note Tuesday. WMT, according to RBC estimates, caters to more than 260 million people worldwide every single week. The U.S. business alone is valued at $300 billion.

Retail Rebound? When a handful of the nation’s largest retailers report April same-store sales on Thursday, the results—if they come in as anticipated—could show that consumers are spending, at least at some stores. According to Thomson Reuters sales at stores open longer than a year, a key measure of retail growth, are expected to gain 1.4% compared with a 2.3% pullback a year ago. Discount retailers, which are weighted by results from Costco (COST), are projected to rise by 1.2% compared with flat results last April, and apparel sales are forecast to rise 1.8% after a deep 7.7% retrenchment a year ago.

‘Best April’ Auto Results. If you thought that the downturn in March sales was the beginning of a new-auto saturation trend, think again. April sales recovered, suggesting that March’s downturn may have to do with other anomalies, like, maybe the early onset of Easter? Maybe. But there’s no denying what consumers are buying: trucks. While light-vehicle sales rose to a seasonally-adjusted annual rate of 17.4 million, according to Autodata, truck sales raced ahead with their strongest month since November. And it may get better, according to analysts, who point out that spring and summer are the historical hot sales periods for autos.  “Consumers are out there shopping and we’re seeing sustainable, organic growth in the marketplace, and not due to bad habits of bloated fleet sales and overproduction,” says Rebecca Lindland, a senior analyst for Kelley Blue Book. “This is product-driven momentum for Detroit.”

Good Trading,

JJ

@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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