Consider The Potential Opportunity Costs Before You Sell In May And Go Away!

 
View from the Observation Deck
  1. The old axiom in the stock market about selling your stocks at the close of April and then buying back in at the start of November once made some sense from a seasonality standpoint.
  2. When the U.S. was more of an industrialized economy it was not uncommon for plants and factories to close for a month or longer in the summer to retool and allow employees to vacation.
  3. The theory was that companies would conduct less commerce in that six-month span, which would likely translate into lower earnings.
  4. Today, due in large part to globalization, the world is far more interconnected and competitive, and there is less room for downtime, in our opinion.
  5. From 2003 through 2019, there were just two instances (2008 & 2011) in which the S&P 500 Index posted a negative total return from May through October, and the 2008 occurrence was during the financial crisis.
  6. The average total return for the S&P 500 Index for the May-October periods in the table was 3.70%, which is nothing to run from, in our opinion.
  7. Fourteen of the 17 top-performing sectors in the table posted total returns in excess of 10.00% (May-October). For comparative purposes, from 1926-2019, the S&P 500 Index posted an average annual total return of 10.20%, according to Ibbotson & Associates/Morningstar.
  8. We do acknowledge that the May-October stretch coming up could be different from the norm due to the economic challenges presented by the coronavirus (COVID-19). While some pundits believe the stock market has already seen its lows for 2020, others believe that the major indices will need to retest the recent lows before they can truly trend higher. That's what makes a market. 
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector. As of 9/28/18, the Global Industry Classification Standard (GICS) was reconstituted and the Telecommunications Services sector was renamed Communication Services. GICS sector information for periods prior to 9/28/18 may not necessarily be comparable to the reconstituted sectors. 

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Posted on Tuesday, April 21, 2020 @ 11:41 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.