Wednesday, May 1, 2019

Stock Market: Selling In May Would Be A Rookie Mistake

(Drivebycuriosity) - Every year around this time a silly slogan appears in the media: Sell in May and go away. It has been wrong most of the time and will be wrong this year again. Since May 2018 the US stock market (represented by the S&P 500) gained around 12%.  Since 1928 the US stock market (S&P 500) created an average return of about 10% p.a! (dividends reinvested nyu.edu/ investopedia). So, stock market gains are the rule and dropping stock prices (including corrections & crashes) are the exception.

The slogan also is self-defeating. If many follow and sell in May, their sales would set the stock market under pressure and stocks would become significantly cheaper. When the "May-sellers" come back to the market - say by the autumn - their purchases would lift stock prices again. Following stubbornly the "sell in May" proposal would therefore implement to sell cheap and to buy expensive.

 I suppose that stock market will still benefit from four trends at least:


1. Company profits will proceed with their solid growth, the engine of the stock market gains. During the recessions of the years 2001/02 and in 2008 companies restructured and reduced costs significantly in order to survive. Now they are much fitter and more efficient than before. I believe that this learning process will continue and will translate into a long term trend of rising company profits.

2. We are experiencing a new industrial revolution.  Advances in Internet (cloud, 5G), mobile computing, 3-d-printing, robotics, nano- & biotechnology and other technologies are reducing costs, raising efficiency and creating new markets.

3. Lower taxes and less regulation in the US will also continue to support the growth of the company earnings.

4. There are solid tailwinds from the emerging markets which are even getting stronger. The catching-up process in China (which is still growing about 6% annually), India, Indonesia and a lot of other countries translates into high growth in large parts of the global economy that creates continuously rising revenues & profits for global companies like Starbucks, IBM, Caterpillar, Apple and other members of the S&P 500.
 
Selling in May would be a rookie mistake again. 

No comments:

Post a Comment