Market performance so far this year also provides a good cautionary tale of why seasonality shouldn’t be the principal driver for investment decisions. The market suffered through a horrendous January, typically a strong month, and then enjoyed a strong rebound in February, historically one of the weakest months of the year as fundamentals trumped seasonal effects.
But while I don’t believe that the calendar should drive investment decisions, ironically the conclusion to “sell in May” may not be wrong this year.
As I have discussed in recent weeks, investors remain complacent, with volatility bouncing around historic lows. While the U.S. economy appears to be stabilizing and earnings are okay, neither is providing a strong catalyst for equity markets.
With valuations, at least in the United States, at the upper end of their historic ranges, investors may need to see better bargains to draw new money into the market. As such, this May probably isn’t a bad time to trim positions and lower risk: not because of the calendar, but because there are few bargains left.
Sources: Bloomberg, BlackRock Research
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.