Sell in May and go away should be left with a pile of 8-track tapes.
The old adage isn’t just bad advice, it’s not even true.
In fact, the worst month for stocks is June!
This data shows what buying the SPY at the beginning of each month and selling at the close would net you over the last 20 years.
April and November – awesome months.
May – not too shabby.
June – no thank you.
And it wouldn’t be much of a surprise to see that happen this time around.
Already, we’re seeing inflated assets like cryptocurrencies take a swan dive.
Risk assets like the Russell 2000 (IWM) and the Nasdaq 100 (QQQ) are down from the open of the month, while the S&P 500 (SPY) is up just a touch.
The big movers in May were gold (GLD) up over 5%, with crude oil and energy-related stocks up a skosh.
Advisors spent the month evaluating their portfolios, seeing where they could shed risk heading into the summer months. And it’s no surprise why.
After the Federal Reserve finally awoke to the possibility of too much inflation, they tempered their public statements.
That’s played out with treasuries barely moving after a multi-month decline and gold snapped up as an inflation hedge.
The question on every advisors’ mind is what’s next.
Bull market runs go much farther than most expect. And studies show buying into one tends to outperform buying dips.
Does that mean we dive headlong into equities?
Despite increased volatility in price movement, the S&P 500 Volatility Index (VIX) dipped below $20 for the first time since the pandemic began, implying complacency in the market.
To be fair, you would be hard-pressed to find more than a few instances of the VIX above $20 from 2017-2019. So, in a sense, we’re returning to a semblance of normalcy.
Yet, that’s often the time when the unexpected happens.
Beta is a good measure of risk in a client’s portfolio. It measures the correlation between a base index, in most cases the S&P 500, and how much it moves.
For example, a beta of 1 indicates the portfolio moves 1 for 1 with the S&P 500.
0.5 beta means it moves half a percent for every one percent the S&P 500 moves.
Ideally, you want to look to reduce the portfolio beta at market extremes and increase it near bottoms.
It’s a way to buy low and sell high without getting out of the market.
Our hot take
Use the volatility to your advantage. Price swings allow you to get in and out of stocks at premiums and discounts you otherwise wouldn’t be able to.
Questions from your clients
- Are cryptocurrencies a good investment?
- How can I protect my assets from inflation?
- What economic ‘reopening’ opportunities are out there?
- How can I enjoy my summer without worrying about the markets?