“Sell in May and go away” was a pretty profitable investing strategy in the past few years, even if there was no real econometric or financial methodology to recommend it. But for 2013, at least so far, that strategy is proving to be less reliable than in the past.
Talk of tapering a month ago made the strategy appear to be right yet again. Now it’s becoming very wrong very fast. It’s earning season again as companies report how much revenue and earnings changed in the last quarter. Many companies are impressing investors. Wendy’s (WEN), Peabody Energy (BTU), DuPont (DFT) saw a short-term gain on higher than expected earnings, United Technologies (UTX) also climbed higher with stronger earnings.
Tech (XLK) is bucking the strong trend. Microsoft (MSFT), Google (GOOG), and Intel (INTC) are all lower with disappointing earnings. However, investors are paying little attention to this, because the decline in each case seems to be more due to creative destruction and not due to a slowdown in consumer activity.
So, for the most part, the market is maintaining its first-half gains for 2013 thanks to earnings that are, although by no means robust, far beyond the dismal numbers we’ve seen in recent years. Also significant for investors are the rising earnings for investment banks like Goldman Sachs (GS) and Morgan Stanley (MS). Both reported higher trading volumes and thus better profits. More trading generally means more confidence in the economy from investors, and can be a forward-looking indicator of higher stocks in the future.
All told, there are reasons to expect stocks to buck the Sell in May trend of the past few years, which means investing in the market now and choosing the right stocks is more important than ever, especially if macro trends spark fears and cause a downturn that savvy investors can capitalize upon. Finding the right timing, and the right ticker to target, is the real challenge.