The question of the day is relatively straightforward at this time: Will we see a meaningful decline (defined as a loss of -10 percent or more) on the S&P 500 in the near term or not?
From the bears’ perspective, the answer is an unequivocal “yes.” Our furry friends cite the ongoing mo-mo meltdown (Social Media (NASDAQ: SOCL), Internet (NYSE: FDN), and Biotech (NYSE: XBI) all hit fresh lows this week), the rotation into defensive sectors (Utilities (NYSE: XLU), Staples (NYSE: XLP), etc.), the Presidential cycle, the situation in Ukraine/Russia, the Fed’s taper, a pick-up in inflation, and the ever popular “Sell in May and go away” strategy.
In the opposing dugout, the bulls are quick to remind us that there have been several cases in history where the broad market was not impacted by a mo-mo meltdown to any great degree, that the economy appears to be bouncing back from the polar vortex-induced pause, that rates are behaving, that inflation remains below the Fed’s target, that the “Sell in May” game doesn’t always work, and that “something everyone knows isn’t worth knowing.”
Something That Everyone Knows…
If you want to have some fun, take a look at the search volume for the phrase “Sell in May.” Looking at the last 10 years of data, the number of searches for the words “sell in May” usually surges in February and peaks in March. This would appear to be logical as stocks typically improve during the first two months of the year and then traders begin to wonder whether or not it is time to bail.
What’s interesting is that this year, the number of searches relating to “sell in May” are just about double the average of the last 9 years. Thus, one could argue that “everyone” is looking for a correction in the near-term.
However, we need to keep in mind that historically, Ms. Market displays a tendency to frustrate the masses at every turn. So, with just about everyone on the street looking for a meaningful decline to begin at any moment, it looks like that those looking to “sell in May” are in the majority. And frankly, this should make anyone thinking about heading to the sidelines soon more than a little nervous.
David Moenning is the founder and chief investment strategist for StateoftheMarkets.com, a website dedicated to investor education and portfolio analysis. Mr. Moenning is also President of Heritage Capital Management, a privately owned, investment management firm. Founded in 1989, Heritage is focuses on risk management and an “own the best and ignore the rest” equity selection strategy.
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Positions in stocks mentioned: none
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.