sequestration Archives • Rutherford Investment

Sell Stocks In May And Go Away? No Way!

Originally posted in the Daily Journal of Commerce, Portland OR

Published May 13, 2013

Many myths persist in the market. Some have a bit of truth, and that is enough to keep them around: “Don’t fight the Fed,” “Don’t fight the tape,” and “sell in May and go away.” Do we hang on to the latter because it rhymes, or because it works?

Of course, if one has a taxable account, one has to take into account capital gains taxes. The saying has some credence because historically stocks in May advance only 52 percent of the time, but – on average – 62 percent of the time in a month. Is this a year to sell in May? It doesn’t look like it.

After a strong start to the year, equities are up more than 18 percent year to date. For a time, stocks paused to let the economy catch up, but then resumed their upward trend. Earnings have been better than expected. About 70 percent of firms that have reported so far have beaten street estimates on income; only about 20 percent have failed to meet estimates.

However, revenue is another matter, as most firms have failed to meet their revenue targets and have signaled tough sledding ahead. Unemployment numbers remain persistently high, economic numbers remain weak, and gross domestic product growth is sluggish. The efforts of the Fed to jump-start the economy are having less and less impact. Sequestration has only begun to take effect.

Signs are mixed for the global economy. Europe remains troubled, but at the moment seems to be stabilizing. Headwinds persist, but the market is staying on its upward course with brief interruptions. […]

Market Averages Reach All-Time High

Originally posted in the Daily Journal of Commerce, Portland OR

Published April 8, 2013
Both the Dow Jones industrial average and the S&P 500 average reached all-time highs in the first quarter of 2013. The Dow jumped 11.25 percent for its best first quarter in 15 years. The S&P moved up 10 percent, finishing the quarter at 1,569.19 and eclipsing the previous high of 1,565 set 5½ years ago. The NASDAQ closed up 8.21 percent year to date at 3,267.52 and reached a 52-week high, but it’s far from its peak. Of course, these “highs” are not adjusted for inflation, and will have to be higher to claim higher real returns.

Meanwhile, 30-year Treasury bonds declined 3.1 percent for the first quarter, with the broader bond market declining 0.3 percent. In March, bonds declined 0.1 percent versus a return on equities of 3.75 percent. This is consistent with my previous admonition regarding bonds and the pressure they will be under as interest rates rise.

Previously I remarked that a movement from bonds to equities is expected as the Fed policies continue to favor equities. Investors have been forced to take more and more risk to find yield, and this will not end well. Bond exchange-traded funds are taking more risk; money market funds, normally thought to be a safe haven, are forced to take more risk.

The averages reached these new records in spite of year-end wrangling over the budget in Washington. First, the so-called “fiscal cliff” fixated the markets, but then came and went. Then sequestration loomed, and that was thought to mean the end of the rally. But the market just shrugged. Another crisis […]