(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.
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