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Market Perspectives - May 2017


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Below please find a link to our monthly market perspective piece for May. This month we explore the reality behind market anomalies such as “sell in May and go away.”

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Market Perspectives - May 2017

  1. 1. Market Perspective – May 2017 Experience Insight Impact Overview: Over the years, many stock market “legends” have been introduced. For example, associated with the season of spring is the expression “sell in May and go away.” In this month’s issue, we examine some of these long held views. While there is interesting data behind these market anomalies, we are mindful that many of them can be the result of data mining and can be extremely difficult to translate into actionable trades. 1
  2. 2. Sell in May and Go Away Experience Insight Impact 2 Returns during the cooler months significantly outpaced returns during the warmer months. Since 1928, $100 invested in the S&P 500 during the November through April period would now be worth $4,270. However, $100 invested during the May through October period would only be worth $257. The trend is similar over the last 50 years ($2,136 for November- April vs $139 for May-October) and over the last 20 years ($343 for November- April vs $98.50 for May-October). Source: Factset Source: Investment U
  3. 3. Sell in May and Go Away: Reality Experience Insight Impact 3 • Despite the striking statistic, “Sell in May and go away”, a portfolio reflecting these actions did not outperform the simple buy-and- hold portfolio over the long-term. • We would also point out that there have been numerous times where this has not worked. For example, in 2009, investors would have missed out on 20.5% in gains (excluding dividends) not being invested during the warmer months. • There is also an element of randomness to the exact timing, which presents the distinct possibility of data mining. Source: CXO Advisory Group, Forbes
  4. 4. January Effect Experience Insight Impact 4 The January effect is a seasonal increase in stock prices during the month of January.
  5. 5. January Effect: Recent Performance Experience Insight Impact 5 However, recent S&P 500 January performances have been poor, especially since the crisis in 2008. January 2015 and January 2016 also produced losses in excess of 3%. This trading strategy has been inconsistent over time. Source: CNBC
  6. 6. January Barometer Experience Insight Impact 6 Another market legend is that January’s return predicts the direction of the stock market for the whole year. The above scatterplot of Full Year Return vs. January Return shows some evidence of a predictive nature.
  7. 7. January Barometer: Recent Evidence Experience Insight Impact 7 However, the recent track record for the January Barometer has been poor. Trading based on the January Barometer would have led to missing out on some of the greatest rallies post Great Financial Crisis of 2008. It is frequently pointed out that correlation is not the same as causation. +15.8% +5.5% -37.0% +26.5% +15.1% +2.1% +16.0% +32.4% +13.7% +1.4% +12.0% S&P 500 Return Source: Business Insider, Wolf Street
  8. 8. Conclusion: We have examined several supposed market anomalies surrounding the stock market. In some cases, the initial data may seem compelling. However, we remain mindful that most of these anomalies do not have sound reasoning and data mining is partially to blame. In essence, it is important to stay invested and evaluate the investment landscape through multiple sources of data, considering different perspectives, and drawing conclusions that can be backed by fundamental reasoning. Experience Insight Impact Market Perspective – May 2017 8
  9. 9. Experience Insight Impact Disclaimer Opinions expressed in this commentary may change as conditions warrant and is for informational purposes only. Information contained herein is not intended to be personal investment advice for any specific person for any particular purpose. We utilize information sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of future performance; investing involves risk and may result in loss of capital. Consider seeking advice from a professional before implementing any investing strategy. 9