May 2023 Market Prediction: Buy, Sell or Stay
“Sell in May and go away” is an adage that you may hear each year around this time. It suggests it would be beneficial for investors to go on vacation from their portfolios starting in May and not returning until November. Some historical analysis suggests the summer months of the market tend to be the weakest of the year. Since 1990, the S&P 500 has gained an average of about 2% from May through October. That compares with a roughly 7% average gain from November through April.
However, there are plenty of times this strategy would not have paid off. Stocks tend to record gains throughout the year, on average, so selling in May generally doesn’t make a lot of sense. Stocks have still grown on average even during this historically slower period, with the S&P 500 up around 65% of the time. History suggests the opportunity cost of periodically exiting and reentering the market may be significant. It’s extremely hard to time the market consistently.
There are plenty of reasons to consider caution as we head into May. The Federal Reserve is expected to raise rates another 25 bps this week. The question remains what their next moves will be. Core CPI numbers (inflation measures minus food and energy) continue to be sticky. However, cracks in the overall economy from cumulative rate hikes are appearing. There are signs of job market softening as continuing unemployment claims are elevated. We have also seen obvious stress on financial institutions and there is concern that after math contamination could spread to other banks. Economic slowdown risk remains elevated. This certainly leaves the Federal Reserve in a challenging position.
The current environment leaves investors also wondering what to do next. This could be a good time to steer portfolios to areas of strength and momentum and away from the areas that are dragging. As we always say, “let your winners run and cut your losers quick”. I expect the Federal Reserve to at least pause further rate hikes for the time being. If that occurs, we could see some rotations in both the equity and bond markets. Areas of quality companies in equities historically have performed better after a rate hike pause and reversal. In the bond markets, we could see a move to longer duration high quality companies and out of the ultrashort areas that have been outperforming recently. We will just have to see if history repeats itself.
There is certainly a lot of uncertainty for markets as we head into summer, but I still don’t think you need to go on vacation with your investments this May. You certainly want to make sure you have a clear set of investment rules you are following. Your portfolio allocations should each have an identifiable role in your overall strategy and it’s ok to fire them if they stop fulfilling those roles. As always, if you have questions about your current portfolio allocations, we are always happy to discuss them with you. Until then, we wish you the very best and look forward to being back in June!
ASHLEY ROSSER, PRESIDENT
Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.
Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Wealth Partners in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.