LPL Market Signals: Sell In May?

Market Blog

Wednesday, April 5, 2021

May is here and with it comes the worst six months of the year for stocks, which is also known as “Sell in May” and is one of the more popular investment axioms. The LPL Financial Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder will discuss if you should sell this May, along with a look at a historically strong earnings season, and some recent economic data. Also, Ryan breaks out the final talking dog joke. It was a good run, but there just aren’t that many good talking dog jokes!

Time to Sell?

As the chart shows, the next six months are indeed the worst six months of the year—up only 1.7%—but as Ryan notes, stocks are still up during this timeframe. Jeff points out that after nearly a 90% rally, maybe we are due for a break or consolidation, but this would be a buying opportunity and would be perfectly normal. Don’t forget though, stocks have been higher in May seven of the past eight years: So maybe we should sell in June, not May. Lastly, these “worst” six months have actually gained in eight of the past ten years, so nothing is as easy as it seems.

View enlarged chart.

Earnings Update

Jeff discusses that first quarter earnings are now expected to be up more than 22% above previous expectations, with growth tracking at 46% year-over-year. Additionally, 88% of S&P 500 Index companies that have reported and beaten expectations, while revenue is up an impressive 9%, as well. Stocks have had a great run, but earnings drive long-term stock gains and we do feel this helps to justify stocks are current (and likely higher) levels down the road. Not to be outdone, but estimates for the next four quarters have risen an impressive 3.3% since earnings season began.

View enlarged chart.

Economic Roundup

Q1 Gross Domestic Product (GDP) came in at 6.4%, with next quarter expected to be closer to 10%. Ryan observes that the odds are getting quite high that the National Bureau of Economic Research (NBER) will say the recession ended quite soon, with the summer time the likely time the expansion started. Jeff remarks on savings soaring to 28% and how that comes out to $6 trillion (the second higher number ever), which really is a lot of money on the sidelines. All in all, the economic data continues to come in extremely strong as the economy opens up faster than expected.

Watch and Listen

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