May through October the average 6 month return is 1.5%. So it is a gain and all the headlines fail to mention that.- John Lynch – LPL Chief Investment Strategist
In this week’s Market Signals podcast, the LPL Research strategists discuss the improving economy, the “Sell in May” investment theme, and new highs for stocks.
The first quarter GDP came out last week at a very impressive 3.2% — well above most expectations. It shows the US economy is on firm footing and could bode well for the second half of 2019. Many have said the current economic slowdown could lead to a recession. However, the LPL strategists note they don’t see it that way.
With the month of May fast approaching, the strategists also talk about “Sell in May.” It’s a popular investment theme that focuses on the worst six months of the year from May through October. Since 1950, these six months have only gained 1.5% on average. That’s the worst out of all possible six month scenarios. Here’s the catch according to LPL’s strategists: These worst six months have actually shown gains in six of the past seven years. After a staggering 25% rally in stocks since late December, a pullback could be perfectly normal. And it just might take place during this historically troublesome time for stocks.
Rounding out this week’s discussion are new all-time highs for the S&P 500, the first since September of last year. Some might see this as a cause for worry. However, the LPL strategists say there’s nothing to fear. As the chart below shows, returns after new highs can be quite strong. The bottom line is there could be a well-deserved pullback any time. But with a solid fundamental backdrop, we would be looking to add to equity exposure.
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