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Should You Sell in May and Go Away?

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Should You Sell in May and Go Away? For UBS marketing purposes In short, the Chief Investment Office don’t think investors should sell in May and go away. (UBS) UBS House View Should you sell in May and go away? 29 April 2019, 6:51 pm CEST, written by UBS Editorial Team Stocks are trading at all-time highs and, year-to-date, prices have risen faster than earnings. The traditional summer lull is drawing closer. Investors would be forgiven for wondering whether now is the time to follow the old stock market adage to sell in May and go away. But before de-camping for the summer months, investors is 5.7%), the S&P 500 has traded on a trailing price should consider the following: earnings ratio of 20.1x. • A "sell in May" strategy would have historically proven • Record highs tend to be supportive of, rather than costly. Stock market returns are indeed lower in the detrimental to, near-term returns. Using S&P 500 price summer months, but they are still positive. Since 1928, data since 1950, after stocks set an all-time high, their returns from May through August have delivered an subsequent six-month price return has been 4.7%. annualized return of 2.3%. This might sound small, On any other day, the average subsequent six-month but makes a big difference over the long term. An return has been lower at 4.2%. Furthermore, after the investor who put USD 100 into the S&P 500 in 1928 index reaches a peak, subsequent large falls have also and followed a “sell in May” strategy (shifting out of been less common. The market has just 11% of the equities into 3-month Treasury bills from May through time declined by more than 5% over the six months August) would today have an investment worth USD following an all-time high, compared with 18% of the 5,800. But USD 100 invested in 1928 would be worth time otherwise. more than USD 16,000 today if invested over the whole • Stocks are fairly valued rather than expensive. The period, almost three times as much. trailing price earnings ratio for the S&P 500 is currently 18.1x, close to its 20-year average of 18.3x. As such, we continue to advocate the importance of staying Furthermore, when the misery index (the sum of invested for the long-term, and focusing on time in the unemployment and inflation) is below 6.4% (today it market, not timing the market. That said, investors will need to ensure portfolios are set up both to grow toward long- UBS Investment Insights For UBS marketing purposes term goals and also to protect against the risk of near-term wobbles. In our recent note, Be prepared: Plan, Protect, and Grow, we described some of the ways how: • Plan. Take the opportunity to consider your near-term spending plans, and hold enough in cash or short-term bonds to meet your cash flow needs over the next two to five years. • Protect. We expect the expansion and bull market to continue for some time, and recommend a risk- on positioning. But it's also important to manage downside risks. We recommend a tactical overweight to long-duration Treasuries as a part of this protection and, looking beyond our 6-12 month tactical horizon, our Bear market Guidebook also provides insight on structural and strategic ways to protect against the next downturn, when it appears. • Grow. We currently see the best tactical opportunities in Japanese and emerging market equities, which have lagged in the recent rally, offer attractive valuations, and have earnings growth that can benefit from a re- acceleration in global growth. In short, we don’t think investors should sell in May and go away. But Plan, Protect, and Grow in May can help investors prepare for the summer months. Main contributor: Mark Haefele, Chief Investment Officer For more, see HV weekly, 29 April, 2019. Content is a product of the Chief Investment Office (CIO). UBS Investment Insights For UBS marketing purposes Important information As a firm providing wealth management services to clients, UBS Financial Services, Inc is registered with the U.S. Securities and Exchange Commission (SEC) as an investment adviser and a broker-dealer, offering both investment advisory and brokerage services. Advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate contracts. It is important that you carefully read the agreements and disclosures UBS provides to you about the products or services offered. For more information, please visit our website at www.ubs.com/workingwithus. ©UBS 2019. All rights reserved. UBS Financial Services Inc. is a subsidiary of UBS AG. Member FINRA/SIPC. There are two sources of UBS research. Reports from the first source, UBS CIO Wealth Management Research, are designed for individual investors and are produced by UBS Wealth Management Americas (which includes UBS Financial Services Inc. and UBS International Inc.) and UBS Wealth Management. The second research source is UBS Investment Research, and its reports are produced by UBS Investment Bank, whose primary business focus is institutional investors. The two sources operate independently and may therefore have different recommendations. The various research content provided does not take into account the unique investment objectives, financial situation or particular needs of any specific individual investor. If you have any questions, please consult your Financial Advisor. UBS Financial Services Inc. is a subsidiary of UBS AG and an affiliate of UBS International Inc. UBS Investment Insights.
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