With May starting in just a few days, those of you who are sensitive to the market’s semiannual cycles may be reciting the chorus of The Clash’s 1982 hit, “Should I Stay or Should I Go?” A better question would be “Should I Stay or Should I Rotate?” Staying would mean not making any changes to your portfolio. Rotating would mean adjusting your equity allocation.
Before explaining the rotational strategy, some brief background on the semiannual cycles. While many of us will welcome the flowers and warmer weather May brings, Mr. Market tends to be more humdrum. Since 1945, the S&P 500 has realized an annual gain of 1.6% between May and October. Gains occurred during less than two out of every three of these six-month periods (64%). Once the chillier weather arrives in November, stocks heat up. The S&P 500’s annualized gain for the November through April period is 6.7%, with gains occurring 76% of the time based on data from CFRA investment strategist Sam Stovall. Hence the terms “best six months” and “worse six months.”
Keep in mind that the odds of increasing wealth while holding onto stocks during the worst six months are far better than what you’d find in Las Vegas or even by flipping a coin, for that matter. If the historical odds hold, you’ll even beat what you’d earn by staying in cash during the worst six months. Of course, the counter-argument will point to the 36% chance of losing money if you stay. Without risk, there cannot be gain. The key is to take smart risks. Here are three strategies. Continue Reading »
More on AAII.com
- Using Seasonal and Cyclical Stock Market Patterns – Jeff Hirsch of the Stock Trader’s Almanac explains the best/worst six-month strategy in greater detail.
- Choosing the Right Portfolio Allocation Approach for You – There are more ways to allocate your portfolio; here’s an overview of the six most common approaches.
Highlights from this month’s AAII Journal
- Closed-End Bond Funds Versus Individual Bonds: A Case Study – Attractive yields can overshadow potential pitfalls in these funds.
- Company Size and Investment Returns – There is an advantage to owning small-cap stocks, but the outperformance does not occur every year.
AAII Sentiment Survey
All three sentiment indicators are now near their historical averages, as optimism rebounded to its highest level in two months while neutral and pessimistic sentiment both fell. More about this week’s results.
- Bullish: 38.0%, up 12.3 points
- Neutral: 30.2%, down 5.3 points
- Bearish: 31.7%, down 7.0 points
- Bullish: 38.5%
- Neutral: 31.0%
- Bearish: 30.5%
The Week Ahead
First-quarter earnings season continues with 131 members of the S&P 500 scheduled to report. Included in this group are Dow Jones industrial average components Apple (AAPL), Merck & Co. (MRK) and Pfizer (PFE), all of which will report on Tuesday.
The Federal Open Market Committee will hold a two-day meeting, starting on Tuesday. The meeting statement will be released Wednesday at 2 p.m. ET. The CME Group’s FedWatch Tool shows traders pricing in a 96.8% chance of rates being kept unchanged. Odds for a quarter-point hike occurring at the June meeting currently stand at 68.0%.
Elsewhere on the economic calendar, March personal income and spending, the April PMI manufacturing index, the April ISM manufacturing index and March construction spending will be released on Monday. The April ADP Employment Report and the April ISM non-manufacturing index will be released on Wednesday. Thursday will feature March international trade, first-quarter productivity and March factory orders. April jobs data, including the change in nonfarm payrolls and the unemployment rate, will be released on Friday.
Four Federal Reserve officials will make public appearances on Friday: Vice Chairman Stanley Fischer, San Francisco president John Williams, St. Louis president James Bullard, Chicago president Charles Evans and Boston president Eric Rosengren.
Local Chapter Meetings
AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you!
Join AAII Today and Receive Full Site Access Plus Stock Screens, Online Guides and More
The AAII.com website is a treasure trove of investment knowledge and tools that are all geared toward making you a smarter and more profitable investor. The site offers a full archive of AAII Journal articles, our library of stock screens, investor classrooms, discussion boards, investment guides and topical areas covering investing basics, stocks, mutual funds, bonds, research and much more.
Please note, this small description doesn’t do justice to our website. It houses almost every imaginable investment tool, resource and service you might need. Once you dig into the AAII website, you’ll have a difficult time signing off! As a brief example of the power of AAII.com, let me take a moment to share with you a little bit about the free members-only stock screens we provide online. Tom D. from Pittsburgh, Pa., says, “The AAII.com stock screens are awesome!” We tend to agree.
The Stock Screens area allows you to quickly tap into the investment philosophies of popular professional investors as well as to see the resulting stock picks. As a user, you’ll be able to pick a name (or investment strategy) from our online menu and see the resulting companies that meet the criteria of each specific stock screen.
Here’s a quick peek at some of our more popular screens and their impressive 2017 returns:
- Fisher (Philip) up 21.6%…
- Driehaus up 18.1%…
- O’Neil’s CAN SLIM Revised 3rd Edition up 14.6%…
- MAGNET Complex up 13.3%…
- NASDAQ 100 up 11.8%…
(Return data as March 31, 2017)