Go away in May?



During April, the S&P 500 posted its first monthly decline since November. However, it was down only 0.8% last month. That’s actually quite impressive given that many of the same worries about Europe and the US that triggered a really nasty correction in 2010 and another one in 2011 are back.

Maybe investors are less prone to panic selling on every piece of bad news. On Monday, there was plenty of it. Chicago’s regional business survey came in much weaker than expected. Spain reported its economy contracted in the first quarter, and S&P cut the credit ratings of 11 Spanish banks, following its downgrade of Spain last week. On the other hand, yesterday’s ISM survey of manufacturing purchasing managers was loaded with good news.

May is a good month for panic attacks. We are supposed to go away starting on May 1 and come back on the first day of November. The recent history of this old saw is mixed. During 2009, the S&P 500 rose 18.7% from May 1 through November 1. During 2010, it was a good idea to go away in May, but if you came back on July 2, you would have made 15.7% by November 1. Last year, going away worked quite well as the S&P 500 lost 8.1%, but it would have been much better to come back on October 3 and enjoy a 14.4% gain by the end of the year.

Since 1946, the S&P 500 has increased during 37 of the 66 years. During the up years, it rose 2.95% on average. During the down years, it fell 3.08% on average. In other words, stocks can be up or down in May, the same as every other month.

Tailwinds vs. Headwinds
(1) The answer is blowing in the wind. (2) April data should be less seasonally distorted. (3) Another strong employment indicator. (4) Purchasing managers are a happy lot these days in the US. (5) Construction remains in the storm cellar. (6) China’s purchasing managers are also upbeat. (7) Winners and losers in China’s neighborhood. (8) Lots of reasons to sell, but are they good ones? (More for subscribers.)