The old adage “Sell in May and go away” might be especially true this year, posits an article in Barron’s. As the war in Ukraine rages on, inflation rises, Covid cases around the world increase, and the Fed turns aggressive on combating inflation, uncertainty is rampant and investor sentiment is dim. The best thing might be to give up for a while, the article maintains.
“[The] markets hate uncertainty,” says Nicholas Colas, the co-founder of DataTrek, as he tries to make sense of how high the 10-year bond yield will go up as the Fed raises interest rates. Meanwhile, Brian Rauscher of Fundstrat told his clients on a call “don’t fight the Fed,” and to believe the central bank when it says it’s determined to slow the economy down.
Aggressiveness from the Fed can be bad news for stocks, with many analysts saying we are in for a tough spring and summer this year as they take into account rising bond yields and declining retail sales. And so, the article advises, as the Fed tightens, investors may do better by selling now and watching the drama unfold this summer from the sidelines. Historically, if the market is down through April, it’s continued to fall from the beginning of May through the end of September 40% of the time. When the market starts the year by rising, it falls from May to September 23% of the time, with the average gain over that period being 8%.
If 2022 follows that pattern, investors won’t lose much if they pull back this year. While investors likely won’t pull everything out and go to cash, making changes in their portfolios such as reducing exposure—particularly in the industrial and commodities sectors, could make sense Rauscher specified, while pointing to the healthcare sector as a safer bet—and taking a more defensive position could be a smarter strategy for weathering this year, the article contends.