The age-old adage “sell in May and go away” has long been a mantra for seasoned investors, referencing a strategy to exit positions in the U.S. stock market during the typically down-trending summer months. But how did this strategy fare this May? Spoiler alert: it wasn’t as predictable as many might think.
Investor wisdom was put to the test as varying sectors reacted differently. While U.S. stocks shook off bearish sentiments to post gains, other markets like bonds, international stocks, and precious metals saw significant declines. So, if you were banking on the “sell in May” philosophy, here’s what actually unfolded across different financial landscapes.
U.S. Equities: A Surprisingly Strong May
Editor's Note: Analysis and insight for this article were originally sourced sourced from our friends at The Motley Fool
The S&P 500 (Ticker: ^GSPC), often seen as a barometer of U.S. economic health, defied expectations. Despite whispers of an impending downturn, the index rose over 2% in May.
This unexpected resilience underscores a critical insight: U.S. equities can still perform robustly even amid prevalent fears and market skepticism. Investors who chose to stay the course rather than exiting their positions were rewarded. This serves as a powerful lesson in the importance of tuning out market noise and sticking to a well-thought-out investment strategy. Beware, though—this might not be the case every year.
Analyst Ratings for S&P 500:
| Category | Data |
|---|---|
| Consensus Rating | Overweight/Moderate Buy |
| Average Price Target | 4,350 – 4,500 (varies by firm) |
| Potential Gain | 10% – 15% (varies by firm) |
| Number of Ratings | Varies by firm, typically around 20-30 analysts |
The consensus outlook for the S&P 500 remains optimistic, with analysts forecasting a potential gain of 10% to 15%, reflecting confidence in the long-term strength of U.S. equities.
Bond Markets: A Tale of Pain
However, it wasn’t all rosy for other sectors. Bond markets took a heavy hit, particularly long-duration bonds. The iShares 20+ Year Treasury ETF (Ticker: TLT), which is sensitive to interest rate changes, plunged nearly 7% as yields on the 10-year Treasury note rose from 1.67% to 2.16%.
Even broader bond market exposure, like the iShares Core Bond Market ETF (Ticker: AGG), wasn’t immune to the rising rates, shedding over 2%. The takeaway here? Rising interest rates are detrimental to long-duration bonds. Investors attracted to the relative stability of bonds need to keep an eye on the duration of their holdings, especially in a rising interest rate environment. Shorter-duration bonds might offer more resilience, but they’re not immune to losses either.
Overseas bond markets weren’t spared either, compounding losses for U.S. investors as both bond prices fell and foreign currencies weakened against the U.S. dollar. As fears mount over the possible end of the Fed’s accommodative policies, international bond markets could suffer further, particularly as risk-averse investors exit carry-trades predicated on previously wider interest rate differentials.
Analyst Ratings for TLT:
| Metric | Value |
|---|---|
| Consensus Rating | Hold |
| Average Price Target | $133.33 |
| Potential Gain | 4.15% |
| Number of Ratings | 12 |
Analysts have a neutral outlook for TLT, with a consensus rating of “Hold” and a modest potential gain, reflecting cautious sentiment amid rising interest rates.
Analyst Ratings for AGG:
| Category | Data |
|---|---|
| Consensus Rating | Hold |
| Average Price Target | $124.50 |
| Potential Gain | 2.35% |
| Number of Ratings | 6 |
AGG holds a similar neutral outlook with a modest potential gain, indicating broad vulnerability in the bond market despite a more mixed duration exposure.
International Stocks: A Rocky Road
On the international front, the story wasn’t much different—only grimmer. Vanguard Emerging Markets ETF (Ticker: VWO) was down over 5% as emerging markets faced headwinds from global economic conditions, inflation fears, and currency weaknesses. Emerging markets haven’t inspired confidence among investors, with inflation remaining a significant fear and weak currencies posing a challenge for nations reliant on imports.
Japan’s stock market was another casualty, snapping a nine-month winning streak with losses. By mid-month, the Nikkei had shed almost 14% from its highs, showcasing the volatility prevalent in international arenas. Additionally, an ETF tracking the popular MSCI EAFE index of developed foreign markets, like the iShares MSCI EAFE ETF, fell nearly 3% in May. Developed markets, too, suffered due to global economic disruptions and unfavorable currency movements.
Analyst Ratings for VWO:
| Metric | Value |
|---|---|
| Consensus Rating | Overweight (Buy) |
| Average Price Target | $55.50 |
| Potential Gain | 10.3% |
| Number of Ratings | 12 |
Analysts view VWO positively, with a consensus rating of “Overweight” and a potential gain driven by expected growth in emerging markets.
Precious Metals: Losing Their Luster
Even traditionally safe havens didn’t provide refuge. Precious metals like gold and silver witnessed notable declines. The iShares Silver Trust (Ticker: SLV) fell nearly 9%, while gold decreased by close to 6%, signaling back-to-back monthly losses for both.
Why did these commodities falter? The strong performance of the U.S. economy made these traditional safe havens less attractive. When the economy and equities perform well, investors tend to move away from safety nets like gold and silver, leading to declining prices. Gold and silver typically thrive during economic upheavals, but robust economic data from the U.S. continues to weigh down these metals.
Analyst Ratings for SLV:
| Metric | Value |
|---|---|
| Consensus Rating | Overweight (Buy) |
| Average Price Target | $24.13 |
| Potential Gain | 14.1% |
| Number of Ratings | 14 |
Analysts have a bullish outlook on SLV, suggesting that the underlying strength in silver prices could provide significant upside.
Navigating the Near-Term Market Dynamics
So, where does this leave investors? The variances in market performance suggest a nuanced approach is needed. The forces driving these recent declines—rising interest rates, global uncertainties, and a robust U.S. economy—are likely to persist. Hence, portfolio diversification remains crucial. Consider balancing exposure across different asset classes to mitigate risks and seize opportunities.
In summary, the “sell in May and go away” strategy didn’t quite hit the mark this year. So, for those investors who stayed the course and diversified wisely, the results just might have been unexpectedly favorable.
