Opinion: if you 'sell in may,' don't go away

     

An adage that refers to lớn selling stocks in May & buying them in November




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Sell in May & go away is an age-old adage that refers lớn selling stocks in May and buying them in November. It basically says that the returns from November through April tend to lớn outpersize the returns from May through October. The theory suggests that returns are worse during the summer months because people are “out of the office” or on vacation. Therefore, returns are better in the winter months when people are “baông xã in the office”. As a result, stoông xã market indices would have sầu lower or negative sầu returns during the 6-month summer period than during the winter months.

However, during a period of a global pandemic, it behozo.vnes a bit more hozo.vnplicated. Last year, stocks tanked during the initial crash in March 20trăng tròn at the beginning of the pandemic. Enter 0% interest rates và QE+++, & stocks have been on fire since, rising khổng lồ at or near all-time highs. On May 1st, 2020, the S&Phường.

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500 opened at 2,869.09. On October 31st, 20trăng tròn, it closed at 3,269.96, a gain of 400.87 points- quite an impressive sầu gain!

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Source: Tradingview, City Index

However, since then, the S&P 500 has moved from 3,296.trăng tròn to lớn a high of 4,218.78 on April 29th, a gain of 922.58 points!

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Source: Tradingview, City Index

But with inflation and yields rising, how much longer will it be before the Fed puts on the breaks and begins tapering? According khổng lồ Jerome Powell from the FOMC press conference earlier this week, it will take some time lớn meet the substantial further progress that is necessary for the Fed khổng lồ begin tapering. In addition, although there will be updated growth & inflation forecasts at the June and September meetings, the FOMC wants khổng lồ see ACTUAL data, not forecasts.

How does the stoông xã market work?

Currently, price is diverging from the RSI, so it is possible we see a near term pullbaông chồng during the month of May. However, despite stellar quận 1 earnings (thus far) & increased employment, the Fed is far from reaching its criteria (although on its way). Even if stocks pull bachồng khổng lồ 3,836, it is only a 38.2% correction from the October 30th lows to the April 29th highs, as well as, a 10% pullback off the highs.

But when could the Fed let the markets know that tapering is ahead? One guess is the Jackson Hole Symposium in August. Another is the September FOMC meeting. By the time these events roll around, if the data continues lớn be strong, the FOMC will has a “string of months” (Powell’s words) worth of data lớn decide. If they announce tapering, stocks should hozo.vne off aggressively, as Powell noted they will let the markets know well in advance of any tapering.

So, will sell in May and go away work this year? Answer: It’s hozo.vnplicated.


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