“Will stocks disappear in May?” Some market participants believe that it is better to wait and see this year. The old stock market adage speaks to a phenomenon that is borne out by the fact that the period from May to October is seasonally the worst six-month return for the stock market. As traders take time off from their desks during the summer, lower liquidity and higher volatility contribute to the increased likelihood of drawdowns. But that adage may not apply this year. Will this be the year that they leave without selling in May? said Jeffrey Hirsch, editor-in-chief of Stock Traders Almanac. “Let’s track and see what happens to the market.” There is reason to believe the next move will be higher. The S&P 500 and Nasdaq Composite are at record highs even as the turmoil continues in the Middle East, demonstrating the continued resilience of the stock market, especially as the range has widened behind the scenes. .SPX .IXIC YTD Mountain SPX vs. Nasdaq Year to Date Technical settings also remain positive. One of Hirsch’s favorite metrics is something called Moving Average Convergence Divergence (MACD), which shows the relationship between 12-period and 26-period exponential moving averages. This indicates specific entry and exit points for the market and suggests that there is still momentum in the current bull market. But there are also warning signs to watch out for, especially when it comes to the economic outlook. The latest GDP forecast released by the Atlanta Fed puts U.S. GDP growth at 1.2% in the first quarter, down from previous forecasts of more than 3%. Concerns also remain that the disruption of AI in the labor market is not yet fully understood. Ultimately, a key factor in determining where the market goes next will depend on the outcome of the Iran war. Reopening the Strait of Hormuz and a more durable peace deal could provide confidence to investors wary of an economic slowdown due to rising prices. A CNBC survey found that U.S. consumers are already cutting back on spending as gas prices soar above $4 a gallon. “If we get a more permanent solution to the Iran situation, the market will probably rally from May to October,” Hirsch said. “If things drag on and you see a negative crossover in the MACD signal, you might want to take a few chips off the table and tighten up a little bit.” Repositioning The six-month historical pattern from May to October was poor, especially in a midterm election year. As CFRA’s Sam Stovall pointed out, data dating back to 1945 shows that the S&P 500 index rose just 2% from May to October, but rose 7% in the following six months. From May to October during the midterm election period, the composite index fell by an average of 1.2%. But Hirsch isn’t the only market participant to say this year could be an exception. Paul Sciana, chief market technician at Bank of America Securities, said this year will debunk the “sell in May” theory by looking at six-month, three-month and one-month average trends and showing that traders should buy in May and sell in July-August before anticipating weakness from August to October. Meanwhile, Hirsch said he is repositioning into short-term cash and fixed-income products. He favors iShares 0-3 Month Treasury Bond ETF (SGOV), iShares Trust iShares 0-1 Year Treasury Bond ETF (SHV), and iShares Core U.S. Aggregate Bond ET (AGG). He said utilities are also his favorite field. “It doesn’t necessarily disappear,” he said, “but it repositions.”
