Stock Market Roller Coaster | The Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Stock Market Rollercoaster

Volatility has been injected back into markets since the beginning of April as renewed fears over inflationary pressures have caused the Fed to dial back expectations of rate cuts.

At the beginning of the year, market participants were hoping for as many as six quarter point rate cuts.

Earlier this week, the Fed was defending its view that they’re hopeful that more rate hikes won’t be necessary. My how the tables have turned.

Stocks initially rallied strongly on Fed Chair Jerome Powell’s commentary, with the S&P 500 index rising more than 1%. This was likely due to the Fed’s announcement that it will be reducing the pace of its balance sheet reduction, which has been draining liquidity from the financial system.

By the end of the day, however, stocks gave it all back and then some, with the S&P finishing down 1/3 of 1 percent for the day.

Investors should buckle up, because the roller coaster ride is likely just beginning.

Featured Insight: International Equities Look Attractive

International stocks have outperformed the U.S. stock market by roughly 2.5% over the past month, and this outperformance may be just getting started.

After a long period of underperformance, companies based outside of the United States now appear relatively cheap on a valuation basis despite recent economic improvement around the world.

A strong dollar has helped domestic stocks over the past year, but the dollar is likely to weaken in the future, helping provide a tailwind for foreign equities.

Lastly, investors both here and abroad are significantly overweight U.S. stocks relative to international stocks.  A shift toward better performance from non-U.S. stocks could create a flow of funds into those investments, exacerbating the performance trend and driving further outperformance.

Looking Ahead: Sell in May and Go Away?

Well, it’s now May, and the flowers are in full bloom here in Ohio.  May also brings what has historically been the weakest six month stretch of the calendar for stocks.

Sell in May and Go Away has been a popular saying on Wall Street for as long as I can remember, but should investors heed this advice?

Using data since 1950, out of all 12 rolling six month periods, May to October has averaged less than any other six month period with an average return of 1.7%.  November through April has been the best at 6.9%.  Even though May to October has averaged a lower return than other periods during the year, the average return during that time period is still positive, and the market has been higher during that timeframe around 2/3 of the time.  This makes the argument for selling in May somewhat dubious.

Overall, timing the market can be foolhardy regardless of what month it happens to be.  Not only are there potential tax consequences to consider, but timing the market requires two successful decisions in order to work out in your favor.  You have to sell at the right time, but you also have to buy back in at the right time, which can be particularly tricky as the market tends to make bottoms and rally in very rapid fashion.  If you miss it by even a couple of days it could end up significantly lowering your long-term return potential. 

Copyright 2024 The Business Journal, Youngstown, Ohio.