This saying evolved from the stock market’s tendency to perform better during the November to April time period and underperform during the May to October time frame. While Nevada Retirement Planners strongly opposes strategies aimed at timing the market, it is still interesting to monitor these historical trends. This May did not follow the old adage; rather it was a continuation of the bull market leading up to this month. While this particular bull market has many skeptics and non-believers, the numbers tell the real story as the S&P 500 and the Dow Jones Industrial Average reached all-time highs during the month.
The rise in equity prices has been a global event, but U.S. stocks led the charge in May. The outperformance of the U.S. markets has been fueled by a variety of factors. The financial crisis in the U.S. is approaching its five year anniversary while the banking and sovereign problems is Europe are more recent events. The U.S. Federal Reserve implemented multiple quantitative easing programs to pump enormous liquidity into the financial system. These aggressive moves have been well received by the stock market. The U.S. consumer, after significant personal deleveraging, is now more confident and beginning to drive economic growth in housing and retail sales. The fundamentals of U.S. businesses are also very positive with solid corporate earnings supporting current stock valuations. The U.S. economy is on better footing relative to many other countries.
Interest rates quickly pierced into a new trading range causing price deterioration. This was most notable in the U.S. Treasury market and especially in longer maturities as interest rates rose as the yield curve steepened. The credit sectors (mortgage-backed securities, investment grade corporate bonds and high yield) outperformed Treasuries as credit spreads continued to compress. Despite the spread tightening, returns were still negative for the month. High yield bonds are now yielding less than five percent, an amazing historical low level with high yields down over ten percent in the past five years. The party in bonds is winding down. Expect low single digit returns over the next twelve months.
The market’s performance provides some insight, but the most important question is how should your portfolio be positioned in today’s market? Your combined portfolios and investment strategies should be reflective of your personal financial goals, risk tolerances and objectives; not the perceived state of the financial markets. If your time horizon is five years or longer, equities will provide for long-term growth and wealth accumulation. Bonds provide for shorter term financial needs and can control a portfolios overall volatility. Whether stock prices are moving higher or lower and interest rates are increasing or decreasing; the best answer for your portfolio is one that is diversified and properly allocated among the key asset classes. If you have a financial plan and your portfolio reflects your risk tolerance and goals; you are well positioned in today’s market.