Should Investors Fear the Summer Lull?
There’s an old stock market adage, “Sell in May and go away. Don’t come back till Labor Day.”
As the theory goes, the markets lag during May. And this premise isn’t as flimsy as it might appear.
Typically, lackluster first quarter earnings are to blame. Investors are coming off a fourth quarter high where revenue was at its peak. Everything appears sad and unimpressive by comparison.
This is exactly the situation we watched play out recently.
Then, starting in June, the markets usually get tangled up in the hammock of the “summer lull.”
This is the time of year when retail and professional investors alike head off for vacation… or so the theory goes.
Over the years, I’ve inked plenty of articles about how silly the “sell in May” strategy is.
But there is one piece of the whole theory that holds true: the summer lull.
For the weighty, slow-moving blue chips on the Dow Jones Industrial Average, summer is by far the most unpleasant stretch of the year…
January and February can be frigid, while April is typically a ray of sunshine. In fact, the Dow hasn’t ended April down since 2005. Remember, that stretch includes two of the worst market crashes in history.
There’s something about spring that fills investors with hope… which is then snuffed out during first quarter earnings season.
July is historically a very strong month. But it’s surrounded by the ho-hum average returns of May, June, August and September.
Does that mean investors should sell in May and turn a blind eye to the market over the next few months?
I wouldn’t. And I hope you wouldn’t either.
There’s always the opportunity for assets to outperform during sideways stretches. And in 2020 – with the markets in rally mode – there was no summer lull. The sell-off came in September and October.
But I lay this out as a reminder to expect the return of traditional volatility.
Right now, the world is slowly emerging from the pandemic lockdown. We’re still hyper-attuned to every market twitch and stumble.
This June could be a tough one for stocks. Since 2000, the Dow has ended the month down 13 times. But that’s normal, not something insidious.
Look to take advantage of the pullbacks. And target shares of companies that shine the brightest during the summertime.
Here’s to high returns,
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