Recent reports of persistent inflation have fueled concerns that interest rates will remain elevated for an extended period, casting a shadow over the stock market. The market’s sell-off has halted the artificial intelligence-driven rally that characterized the early part of this year. The S&P 500 has declined over 3% this month, despite still being up more than 6% year-to-date. However, many investors are apprehensive that stocks have further to fall before reaching a stable bottom. They cite concerns about overvaluation, coupled with persistent headwinds such as sticky inflation, rising Treasury yields, geopolitical risks, and negative momentum indicators. Mark Luschini, chief investment strategist at Janney Montgomery Scott, cautions that “typically, when you see a 5% drawdown, it’s somewhat rare that it stops there. Typically, from 5%, it goes and mutates into something more in the order of 8% to 11%”. He anticipates increased volatility and downside potential. Nevertheless, he remains optimistic about equities for the rest of the year and suggests that a retest of the 4,800 level in the S&P 500 could present a buying opportunity. Luschini recommends increasing exposure to cyclical sectors like financials, industrials, and utilities. Historically, May has been a challenging month for stocks, leading some investors to adhere to the ‘sell in May and go away’ strategy. This strategy involves selling equities at the start of May and repurchasing them in the fall, attempting to capitalize on the seasonally strong period for stocks. Data from the Stock Trader’s Almanac reveals that May marks the beginning of the six worst months for markets, from May through October, during which the Dow Jones Industrial Average gains an average of only 0.8%. Conversely, the best six months, from November to April, average a 7.3% advance. Jeff Hirsch, editor in chief of the Stock Trader’s Almanac, recently exited his positions in the Dow and S&P 500, citing a sell signal from a technical indicator known as the moving average convergence/divergence (MACD). While he remains positive on equities for the remainder of the year, he advises investors to evaluate their portfolios and make adjustments as necessary. Hirsch emphasizes that it is not a time to sell and abandon stocks but rather to re-evaluate, eliminate underperformers, implement tighter stop-loss levels, and exercise caution in buying. Despite the recent market turmoil, some analysts maintain a more positive outlook. Ryan Detrick of the Carson Group points out that stocks have actually performed well in May in nine out of the last ten years. He also highlights the tendency for stocks to perform well during the summer months, particularly in election years. “The fact that we’ve got a decent year going into this period, and it’s an election year, to us signals we’re not anticipating a major major weakness these next six months,” Detrick said.
Stock Market Turmoil Continues, Investors Advised to Re-evaluate Portfolios
