“Sell in May and go away”? This month we were once again reminded history is a guide, not an absolute. May has historically been a month with little change, closing higher 55% of the time, but it is one of only 2 months during the year with a 90 year average rate of return that is negative. The important energy sector got a boost from higher oil prices during the month and Apple, a large component in most major indices, rallied 13% higher during the month to its highest level in history. We saw triple digit moves for nearly half of the days in May and we had a week where the Dow Industrial average moved higher every day. Despite the volatility, at month end the S&P 500 had gained 2.2%, its best monthly performance since January, and the index is now 1.2% higher for the year.
Shares of Apple were in the headlines during the first few days of the month. There had been concerns about weakening iPhone sales, but their quarterly report showed strong sales and earnings, an increase in their dividend, and a $100 billion share buyback program. Despite strength in market leader Apple, the market struggled early in the week with the focus being instead on a potential trade war with China. On Friday the government jobs report showed 164,000 new jobs were created in April and the unemployment rate dropped to an 18 year low. Apple, having its best week in 7 years, combined with the solid jobs report, pushing the S&P 500 .6% higher at week’s end. The first full week of the month showed the best performance, Apple continued to rally and oil stocks got a nice boost from oil prices moving to their highest level in 4 years. The Dow Industrial average was higher every day during the week and the more widely followed S&P 500 ended the week with a 2.4% gain. During the second full week of the month a disappointing earnings report from Home Depot, and interest rates rising to the highest level in 7 years, weighed on the market. There was an easing of trade tensions with China, but the S&P 500 still ended the week with a loss of .5%. The last full week of the month began with a 300 point Dow rally on news U.S. & Chinese negotiators had reached the framework for a trade deal over the weekend. The following day saw the Dow drop nearly 200 points after Trump said he didn’t like the trade deal. Wednesday was the worst day for shares of struggling Dow component GE in 9 years and the following day Trump cancelled the meeting with North Korea, although many saw that as a negotiating ploy. The market does tend to move higher ahead of a 3 day weekend and, by week’s end, the S&P 500 had managed to close with a .3% gain. We ended the month with a holiday shortened week that began with a nearly 400 point decline on Tuesday, as Southern European economics and politics were once again in the headlines. The market reversed on Wednesday and moved 300 points higher as those concerns were, at least temporarily, set aside. The last day of the month the market moved lower, once again on trade war concerns. We began the month with trade war concerns and we ended the month with trade war concerns.
We often hear about a summer slump as investors take vacations, but June, July and August have historically been positive months for the market, with July actually having the best 90 year average performance of any month. The average rate of return in June is the 5th best for all months, but it has closed higher just 55% of the time. That tells us that when June is higher, it is a very strong month. Interest rates will continue to be a focus. We do expect rising interest rates with a strengthening economy, but they need to rise gradually, or they will negatively impact the markets. Most Q1 earnings reports have been issued, so earnings won’t be a catalyst until July. Oil prices will also be important with higher prices being good for the important energy sector, but prices rising too high too fast can negatively impact the market. The economy continues to expand and the market is reasonably priced. The S&P 500 has been in a trading range between 2600 and 2800 since mid-February and, barring a headline making event, we would not be surprised to see that continue in June.
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