You are clearly familiar with the old trader’s adage of “sell in May and go away”. So here we find ourselves once again in that happy time of year, no? After one of the best 1Q period for equities in many a moon is it time to lock in one’s year? I’ll make this brief and it’s all in the spirit of remaining balanced and flexible. This is punctuated by the fact that we also find ourselves in a period of unprecedented global central banker intervention in financial markets. C’mon, if the US Fed is not targeting equities, then what are they targeting? Even Greenspan has chimed in recently about the real economic wonders of levitating equity prices, despite no one actually asking his opinion. Hey Alan, we heard you the first ten times, okay?
To the point, let’s look quickly at the record of “sell in May and go away” during US election years. The following table uses S&P price only data stretching back to 1950.
To be honest, the data in the table above prompts me to suggest a new old Wall Street adage – “Sell in May except when presidential politics is in play”. Only four out of fifteen occurrences since 1950 have been down periods. In other words, in a little under 75% of occurrences over the last half century plus, it has not paid to get bearish between May and October of election years. Will it be so again in 2012? Again, it’s just historical context and an historical retrospective of human action.
Look, we know Bernanke and friends are itching to print again, but they will need cover. Although I’ll elaborate more on this in an upcoming discussion, right now they need the TIPS breakeven inflation rates to fall as well as the Fed’s stated action point of unemployment numbers rising. Unit labor costs are not Fed friendly at present. On many an inflation anecdote front, the numbers are above the Fed’s publicly stated 2% breathing room threshold—lowering the odds of near term action.
What I hope is helpful is not only looking at the numbers above for historical perspective, but the rhythm of monthly returns in US election years. Let’s throw a quick change up ball and look at the average monthly returns of the S&P in US election looking back 75 years.
One more time, the above also seems to dispel the “summer doldrums” theory of life during election years. Should you be booking a fall vacation this year?
Historical perspective is just that. There are no guarantees in this wonderful world. Again, I’m running through this data all in the spirit of remaining balanced and flexible in what is very much an unprecedented period for global central banking and really the global economy as a whole. But there is one driving force far from historically unprecedented—politics. That never changes in good times or bad. It’s good to know that self interest is very much a human constant, no? This year it may be very good to remember just that. Stay tuned.