One of the old adages of the market is to “sell in May and go away”, or get out of stocks in the summer and come back in the fall when everyone gets back to work. That axiom holds water when you look over many decades, but its record in recent years has been spotty, with summer returns over the last five years being quite solid (though still less than November-April). Over the last five years, the average return from May-October has been 4.31% while in November-April is has been 5.53%.
FINSUM: Anyone’s guess what will happen this year, but the last few summers have been more positive. 5 years is a pretty short sample size though.
A top hedge fund manager known for correctly calling both the 200 and 2008 crises, has just put out a very bearish call. Jeremy Grantham, from GMO, is warning investors that the next 20 years of returns are going to be very disappointing. Grantham thinks that even a dovish Fed can’t save this market, saying “you can’t get blood out of a stone”. His view is that the market will return only 2% a year for the next decade, way lower than the ~6% average. “This is not incredibly painful, but it’s going to break a lot of hearts when we’re right”.
FINSUM: We have personally met Grantham and respect him, but this view is ridiculous to us, as it would be from anyone. Tell what the market might do for the next 2-3 years, fine, but making a call on the next two decades is hopeless.
There have been a lot of bullish indicators lately, and not just in share prices rising. However, there is a big warning sign that investors need to be paying attention to. One of the challenges of assessing corporate earnings is to get a feel for where things are really headed when the whole Wall Street reporting mechanism is stacked to make you think companies are always outperforming. One way to do so is to look at spreads between GAAP earnings and so-called “adjusted earnings”, or the doctored earnings companies love to show to make themselves appear more attractive. The wider the spread, the more companies are reaching to appear as though things look good. This, therefore, makes it a bellwether for how earnings and the economy are really trending. The spread between the two types of earnings stood at $200 bn for year-end 2018, the highest level since 2010.
FINSUM: This is not a perfect proxy, but it is certainly indicative, and the indication right now is not positive.
Every investor seems to assume that this bull market is nearing its expiration date. Good things must come to an end, after all. However, Barron’s is arguing (rather adamantly) that this bull market could perhaps go on for another ten years. Reminding us of the old adage that bear markets don’t die of old age, Barron’s says there is just no sign of real weakness. “As far as the U.S. economy is concerned, there is no obvious sign that it has deteriorated”, says the publication. What about the yield curve? They say that is just an adjustment to tighter monetary conditions and not predictive of a recession in this case.
FINSUM: There is undoubtedly an element of superstition/intuition which is making investors feel like this bull run must come to an end soon. But the reality is that the underlying conditions for that to happen may not be in place.
The S&P 500 is up almost 4% since the end of February. Those are good numbers in anyone’s book. But some stocks in the index are absolutely scorching the market. Take a look at: Nvidia (NVDA), Advanced Micro Devices (AMD), Conagra Foods (CAG), Dentsply Sirona (XRAY), and Chipotle (CMG). NVDA is up 24% since the end of February, while Chipotle is up 17% since then, and about 123% in the last year. All the stocks have positive drivers behind them.
FINSUM: If you are momentum investor, these stocks are certainly top picks.