Sell In May And Go Away?

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Our readers may be wondering by this time what happened to our quarterly newsletter which typically would have been circulating already. Well, the fact is that the tax season was rather demanding this year and seemed to use up precious time that we had planned for writing the newsletter. So we extend our apologies for the delay and we will be back on track!

One of the advantages of the delay, however, was the emergence of a few significant news events that would not have been available to write about had we been on our typical schedule. Those noteworthy items consist of the first ever press conference by a Federal Reserve Chairman in the Central Banks 98 year history, along with last night's (at this writing) breaking news of an elite U.S. military task force that attacked the fortified mansion in Pakistan hiding Osama Bin Laden and killing him. We will come back to this latter item with a closing comment for this article.

The Chairman's press conference marked a new chapter in U.S. central banking history. Chairman Bernanke wanted to fulfill a promise he made at his first confirmation in 2005 to make Federal Reserve monetary policy more transparent to the public and financial markets. In all likelihood, the intent was also to improve public trust in the central bank after the financial "meltdown" caused by the subprime mortgage crisis. As a post press conference critique of his performance it is fair to say that he was generally perceived as uncharismatic, but, nevertheless, genuine, sincere, and demonstrating a strong effort to sooth the public confidence that economic growth will continue, albeit at a low rate for the time being and that inflation remains in check. Whether his presentation at the news conference is to be considered a success or failure will probably take several weeks, or months, to see how the financial markets perform. Oh, and by the way, although there did not seem to be any meaningful market moving news to come out of the press conference, we did learn that the Chairman enjoys playing chess!

Those markets will be functioning at a time of the calendar year where the media will be drawing our attention to a seasonal stock market bias known as "sell in May and go away," in other words a preconceived notion that the summer months will have a negative prejudice. So for those who "buy in" to this market adage we enter the period those investors may begin planning the sale of some or all of their stock and moving to cash. Our feeling, however, is that to subscribe to this or any of the other theory's such as the Halloween Indicator in late October/early November or the Santa Clause Rally in December is merely offering up a referendum for market timing.

While there are certainly studies that provide analytical support for any of these Wall Street maxim's, it only makes sense that they need to be considered within the context of how the economic environment is performing. Yet another significant factor for this summer will be how the economy reacts to the unwinding of the Federal Reserve program of Quantitative Easing 2 scheduled to conclude by the end of June. Will the economy be able to stand on its own feet? Certainly the challenges remain when considering that unemployment continues to be at a high level and the housing market still reflects home prices falling and the foreclosure rates at unacceptable levels.

The stock markets have continued to demonstrate a sense of resilience this year carrying over the momentum that basically began in the last quarter of 2010. That leads to the question of whether the market is currently overvalued and for those seasonal theorist’s stirs the question in their minds if indeed it is May and time to sell and go away! We would rather keep an open mind and just continue to watch the moving parts of our financial system. Yes, growth has been slow, but we seem to be on a path that suggests sustainable growth can be maintained and improved upon with time.

Our closing thoughts are in consideration of the families and friends of all those who were lost in the tragedy of 9/11 which is almost a decade old now. Osama Bin Laden has finally been brought to justice by being killed during the attempted apprehension of him by our elite special force’s unit. His death suggests a small sense of justice being fulfilled after all this time. For those families, friends, and co workers, the events within the last 24 hours of this writing allow a chapter to be closed on a tragic day in our country’s history. It is not a close for the threat of terrorism.

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