History shows July to September is not the hot period for stocks investors may believe
Summer is at hand but do not count on the proverbial summer rally in the stock market.
Sure, there is usually a rally sometime during the summer, because there is usually a rally within any three-month span. But that does not mean summer is a hot time for stocks.
On average, it is not. That is why there is an old stock market saying, 'Sell in May and go away.'
Since 1952, July, August and September have ranked seventh, 10th and 12th of all months in terms of gains for the Standard & Poor's 500 Index. June, which falls mostly in spring but partly in summer, ranks ninth.
Most of the US stock market's gains are concentrated in the six months between November and April. Since 1952, according to Ned Davis Research, the S&P 500 has gained an average of 7.03% from November through April. From May through October, the average gain is only 1.32%.
We are into July now so it is too late to literally sell in May. But should investors lighten up on stock holdings, given the seasonal patterns and given the fact the Standard & Poor's 500 has gained 32% since its 9 October low?
If their investment portfolio is top-heavy with stocks, or if they are using leverage to buy stocks, it would make sense to lighten up a little at this juncture. We have had a good run and it is not cowardly to take a few chips off the table.
If they are light on stocks, which I would define as having less than 50% of their money in the stock market, my advice would be to come in a little deeper.
No, the stock market is not safe, nor is it predictable. Yet over the decades, it has returned about 10% a year, including reinvested dividends.
Most people should not try to time the stock market. The wisest course is usually to set a personal asset allocation, such as 60% stocks, 30% bonds and 10% cash.
Stick with that allocation, making adjustments in holdings twice a year. The mid-year adjustment is due right around now.
If investors follow that practice, they will sell a few stocks when the stock market is up and buy a few when the stock market is down. In the long term, that is usually a good policy.
Now for a few other summer musings. Summer also makes me want to reach for a cold, refreshing Coca-Cola, but I do not think I would reach for the stock. I plan to sell Coca-Cola shares short, betting on a decline, and may have done so by the time you read this.
Coke announced in late June that the Securities and Exchange Commission is investigating its accounting.
I do not think the investigation is a big deal and neither did investors: Coke shares fell only $1 to $47.20 on the back of the news.
Coke's profitability is outstanding but growth is puny.
In the past five years, according to the Bloomberg database, sales have grown at an average rate of 0.7 % and earnings have fallen at the rate of 5.9% a year.
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