George Chamberlin's Money in the Morning

May 26, 2015

So, how is the "buy in October, sell in May" strategy working this year? Permabears, of course, think every day is a good day to sell you stocks, but they really love touting the concept saying you should dump your equity investments at the start of May and stay away until the fall. However, how things go in May is really the key to what is ahead. Sam Stovall of S&P Capital IQ says in the 69 years from 1946 to 2014, the S&P 500 has increased an average of 1.3 percent in the May-to-October period. However, when May proves to be profitable the chances for bigger gains is almost assured. If the index is up in May the six-month period profit jumps to 3.5 percent. Obviously a reader of the classics, Stovall drew an interesting conclusion, saying, "Once Jason safely navigated the Argo past the clashing rocks, his quest for the Golden Fleece became a bit easier. So too history says, but does not guarantee, that the S&P 500's journey to November will likely become less treacherous should we successfully sail through this quickly concluding month of May."

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So, how is the "buy in October, sell in May" strategy working this year? Permabears, of course, think every day is a good day to sell you stocks, but they really love touting the concept saying you should dump your equity investments at the start of May and stay away until the fall. However, how things go in May is really the key to what is ahead.

It is a busy morning for economic news, especially housing reports. The day began with the Case/Shiller March update on home prices in the 20 largest metropolitan areas, including San Diego. Nationwide, prices rose 0.8 percent over the previous month and up 4.1 percent YOY. However, in San Diego County the monthly increase was a very impressive 1.3 percent and up 4.8 percent compared to a year ago. Overall, home prices have increased for 35 consecutive months, causing S&P's David Blitzer to say, "Given the long stretch of strong reports, it is no surprise that people are asking if we're in a new home price bubble. I would describe this as a rebound in home prices, not a bubble and not a reason to be fearful."

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While prices are rising, so are sales. A government report today finds new home sales rose 6.8 percent in April, making up for some of the slow sales during the harsh winter months at the start of the year. On an annualized basis, sales reached 517,000 units, up 26 percent from a year ago. While homebuilders are getting back to work, the inventory of new homes for sale still declined to 4.8 months, down from 5.1 percent a month earlier.

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One of the reasons home sales and home prices have been on the rise is the ever-improving attitudes of U.S. households. The Conference Board reported this morning its consumer confidence index rose this month after a sharp decline in April. Of course, as is always the case, the folks at the Conference Board found a way to put a negative spin on an otherwise good report, saying, While current conditions in the second quarter appear to be improving, consumers still remain cautious about the short-term outlook." I'm guessing none of the geeks at the Conference Board took a road trip this past weekend, tried to find a parking place at a local mall, or visited a theme park. Those short-term indicators seemed to be pointing straight up. By the way, the report showed, among other things, the percentage of people anticipating more jobs available in the months ahead rose, and people continue to be optimistic about their incomes rising.

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These reports, and others, may have been on the mind of Janet Yellen last Friday when she used a speech to the Providence Chamber of Commerce in Rhode Island, to suggest, "If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy." Oh boy. That led to a quick decline in stock prices in Friday, even with trading holiday light. And traders are being a bit more aggressive today, shaving 160 points off the Dow in early trading.

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I guess you could say it is the end of an era. Workers at the PennySaver HQ offices in Los Angeles got quite a surprise when they were informed the company, which has been around for 50 years, would immediately cease operations. The decision was the result of a loss of financing and changes in the way people shop. General circulation newspapers have seen the classified ad sections dwindle to nothing as a result of online sites like Craigslist. To be sure, the PennySaver has been in trouble for a while, shutting down its Vista print and distribution center earlier this year and laying off more than 100 workers. The company that owns the weekly advertising flyer is said to be looking for a buyer or new line of funding.

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Sure was a great weekend for sports, with everything from the Indy 500 to more Padre losses. The guys have won just two games in their last 10 starts and the guys on ESPN are saying Bud Black could be at risk of losing his job as manager. Too bad the new talent hasn't been able to put it all together.

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George Chamberlin's Money in the Morning

So, how is the "buy in October, sell in May" strategy working this year? Permabears, of course, think every day is a good day to sell you stocks, but they really love touting the concept saying you should dump your equity investments at the start of May and stay away until the fall. However, how things go in May is really the key to what is ahead.

George Chamberlin's Money in the Morning

Another record for the S&P 500 yesterday. The broad-based index finished at an all-time high for the 10th time this year as investors realized it will still be some time before the Fed gets around to raising short-term interest rates.

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It looks like a lot of folks on Wall Street are getting an early start for the Memorial Day weekend. Trading has been very quiet and prices are holding in a tight range with little news to move the markets.

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