“Barbecue may not be the road to world peace, but it’s a start.” ~ Anthony Bourdain, American Chef (1956-2018)
Question: How does the adage “Sell in May and go away until Labor Day” apply to financial markets this year?
Answer: This column is being written the Sunday before Memorial Day, so your questions is quite timely. This summer we’re keeping an eye on a multitude of events, including reflection, remembering, honoring, and thanking all who have bravely lost their lives in service of our country. As we continue the battle with the COVID-19 pandemic we hope you are able to make spending quality time with loved ones a priority.
Memorial Day is the unofficial start to summer. Historically many miles are driven over the summer with Labor Day being the unofficial end of summer. The easing of restrictions and inability to travel last year will likely spur many of us to get back to old habits, regardless of higher gas prices. Even while vacationing, don’t lose focus on the markets as there are significant events to monitor making the “sell in May and go away” expression perhaps somewhat of a misnomer this year due to extenuating circumstances.
Since 1990, markets posted below-average returns. Since the March 2020 lows, we’re experiencing unprecedented rallies and volatility. Pullbacks are expected this summer as markets sit less than one percent away from record highs and have not yet experienced a five-percent decline so far this year. Overall though, a positive view remains for the long term.
Here are five developments that could influence market direction over the summer:
Vaccination targets and the pace of economies reopening.
Federal Reserve policy shifts provide opportunities for policy adjustment to keep inflation fears in the transitory column, rather than an ongoing occurrence.
Low inventories and supply chain backups should improve in the next few months causing inflationary concerns to peak in the third quarter and subside by year end. Higher gas prices are a hot spot that do pose a risk acting like a tax on consumers.
Infrastructure stimulus could be scorched due to a lack of a bipartisan agreement.
Anticipation of a 25% corporate tax rate and 28% capital gains rate is somewhat priced into the market. If these rates are lower, it could fuel a rally or vice versa if results are otherwise.
With between eight and nine million workers still unemployed as a result of the pandemic, job reports will command attention. In particular, the job report that releases just before the July 4 weekend may weigh heavily on overall investor sentiment and economic prospects, especially following the disappointing April results. While there are some nuances such as unemployment benefits, child care issues, and a mismatch of skills and available jobs, Raymond James economist Scott Brown expects the trend in nonfarm payrolls to be relatively strong, averaging over 500K in the months ahead.
According to Bloomberg, since 1990 markets have seen average drawdowns of 8.6% at some point between Memorial Day and Labor Day. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Stay focused and plan accordingly.
The opinions expressed are those of the writer as of May 30, 2021, but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Real estate investments can be subject to different and greater risks than more diversified investments. Past performance does not guarantee future results. Raymond James does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.
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This article provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email firstname.lastname@example.org Website: www.raymondjames.com/Darcie.
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