Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Markets - Sell in May and Go Away?

Stock-Markets / Corporate Earnings Apr 25, 2007 - 12:47 PM GMT

By: Hans_Wagner

Stock-Markets

Investors who want to beat the market need to be aware of the key trends that will impact their portfolios. To some this year looks like a classic sell in May and go away. The theory is that the market goes into hibernation for up to six months from May to November, and during the other six months it gets back into gear and makes its move up. Part of this idea comes from the larger traders taking time off for their summer vacations.

I am not so sure we will see this happen this year, as I expect many traders and investors will be looking to react quickly to any further signs of market weaknesses. I also believe we are likely to see much more volatility in the months ahead, which should present some good buying opportunities for some quicker trades.


So what leads me to this thinking? Besides the adage of ”Sell in May . . .” we have the higher than desired level of inflation, slow down in corporate earnings and continuous pressure on the housing sector. This will compel investors and traders to pay close attention as they will not want to be caught on the wrong side of a trade. This means stock picking will be very important. William J. O'Neil wrote an excellent book on how to pick stocks titled How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition that investors should find useful.

The Personal consumption (PCE) is one of the Federal Reserves' most favorite indicators of inflation. It consists of the actual and imputed expenditures of households including data on durables, non-durables and services. The PCE measures the price changes of consumer goods and services indicating the level in the rise in prices as a measure of inflation.

The most recent PCE has risen 0.1% each month for the last three months, with the core PCE running at 2.4% for the last twelve months. This is above the Fed's generally accepted target range of 1 – 2%. So what are the chances that the PCE will fall back to the target range? Not good. The price of corn, soy beans and other grains are rising due to the demand for ethanol. This will increase the cost of all food products that use these staples, such as chickens that produce eggs, feed for cattle and hogs, milk, cereals and bread. This is not likely to help lower inflation and the Fed is not likely to lower rates. As a result investors will need to monitor the Fed throughout the summer to see what they do and say.

Next we are in the middle of the first quarter 2007 earnings season and growth in earnings range between a paltry 3% increase to highs of 7-8%. All of these forecasts are below the double digit earnings growth we have experienced for the last several years. What we are experiencing is a slower economy that is causing corporate earnings to slow down as well. One of the drivers of growth for corporations is the continued growth in major emerging economies such as China and India. I am looking for companies that have a substantial portion of their earnings coming from international operations to experience higher growth than those that are primarily looking to earnings growth within the United States. We are experiencing the impact of the global economy and I believe it will change our markets. With the slow down in the economy, investors and traders will be paying more attention to earnings results for each quarter of 2007.

Finally, on the housing and mortgage front, Equifax, one of the three large credit reporting agencies, reported that the percent of mortgages nationwide in default has risen to 2.87%. And in some states the rate is above 5% like in Texas, California and Colorado. We also have not yet seen all the moves up from the adjustable rate mortgages issued in the last several years, which could make the problem even worse. So far this problem has been contained within the mortgage and housing sectors. For now I am expecting this situation to continue as the rest of the economy seems to remain on solid footing, with employment expanding and most sectors growing. However, these sectors also must be watched closely over the next several months to be sure the problem does not expand to other parts of the economy.

So should we sell in May and go away? I do not think so. We should continue to see good opportunities and I expect the market to remain volatile as investors continue to worry what will happen next. Also, the global economy continues to grow and China will keep on spending at least up until the 2008 Olympics. They want to show the world they are a first rate nation. As a result this will be a stock pickers market through the summer and into the fall. However, we need to remain wary as the higher volatility should cause sudden drops, representing buying opportunities, once they are over.

By Hans Wagner
tradingonlinemarkets.com

My Name is Hans Wagner and as a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market at http://www.tradingonlinemarkets.com/


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in