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‘Sell in May’ Could Be Particularly Good Advice in 2018

‘Sell in May’ Could Be Particularly Good Advice in 2018

Stocks dribbled lower on Monday after charging out of the gate thanks to over-the-weekend M&A news and some solid big tech earnings because those events just couldn’t motivate the seller in a sustainable way. Sellers came on hard in the final minutes of trading, pushing the major averages down to close at the lows of the day.

The Dow Jones Industrial Average fell 0.6 percent while the S&P 500 and Nasdaq Composite both lost 0.8 percent.

All 11 sectors finished in negative territory with telecom leading the way down for a 2.7% loss. This on doubts anti-trust regulators could lean against the proposed Sprint Corp (NYSE:S) and T-Mobile US Inc (NASDAQ:TMUS) tie up. Those two stocks fell 13.7% and 6.2% respectively.

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On the upside, McDonald’s Corporation (NYSE:MCD) gained 5.8% to hit a three-month high after reporting better-than-expected earnings and revenues for first quarter. Apple Inc. (NASDAQ:AAPL) rose 1.8% ahead of earnings.

Energy stocks nearly finished flat thanks to a 0.7% jump in crude oil to $68.53 per barrel — challenging the three-year highs hit last week — amid fresh tension in the Middle East as Israeli Prime Minister Benjamin Netanyahu accused Iran of lying about not having a nuclear weapons program.

On the face of it, a single day’s action shouldn’t matter much to the average investor. But it’s different this time. That’s because the disappointment performance puts an end to an underwhelming year-to-date — with the S&P 500 down 1% so far in 2018. The Dow is off 2.4% — heading into what is historically the worst six months of the year for stocks.

Remember, “Sell in May” and all of that? The trouble is: History suggests a weak start to the year makes the worst six months even more painful. And mid-term election years (like 2018) also trend to be a drag.

This will be a shock to many, as stocks have actually risen between April and October in five of the last six years. Moreover, earnings growth is strong, economic growth is steady, and the job market is firing on all cylinders.

But history should not be ignored.

According to LPL Financial, since 1950 the S&P 500 has gained just 1.5% between May and October and has risen just 63 percent of the time. Compare that to the November through April period (best six months) where stocks have gained an average of 7.1% and risen nearly 77% of the time.

During mid-term election years, the win rate for the worst six months drops to just 53%.

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SentimenTrader notes that investors haven’t had to deal with a year-to-date loss in stocks through April since 2009.

When stocks had performed well through the beginning of the year, the S&P 500 showed a positive return during May through October 74% of the time for an average gain of four percent. For years it was down, the S&P 500 rallied just 44% of the time for an average return of -2.9%.

Check out Serge Berger’s Trade of the Day for May 1.

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