I skipped the market review for March due to commitments for tax season and requirements in an equity analysis class. March was a positive month, with an S&P 500 return of 3.2%. That locked in five months of positive returns for U.S. market indexes. When April ended a few days ago, many seemed surprised that the monthly market's positive returns ended.
Index | April | YTD |
S&P 500 | -4.1% | 6.0% |
Nasdaq | -4.4% | 4.5% |
DJIA | -4.9% | 0.9% |
(1)
Outside of commodities, there wasn’t anywhere to hide in the market to start the second quarter as the probability of the Federal Reserve lowering interest rates declined. I have been saying for months that I don't believe the Federal Reserve will move rates lower this year. I don't see the reason it is necessary.
Economic data, particularly concerning inflation and overall economic performance, were the market's focus in April. March’s Consumer Price Index (CPI) data released in April was higher than anticipated. The first-quarter Gross Domestic Product (GDP) growth was lower than projected. This combination of stubborn inflation and some weaknesses in economic growth led to discussions of “stagflation,” although we will have to wait and see if that plays out.
Despite these concerns, some positive factors were in play as the month closed. Corporate earnings for the first quarter generally exceeded expectations, with a higher-than-expected growth rate as compared to forecasts. Large tech stocks also reported strong earnings, indicating that the secular growth theme in AI remains intact.
One thing that the April decline did was end a five-month winning streak for the S&P 500. It ended a five-month streak of 1%+ monthly gains as well. Below, I show how the S&P 500 has performed in the months and year following the prior five-month winning streaks from the month that the winning streak ended (equivalent to the end of this April).
Historically, the market has been totally fine in the aftermath of the end of these winning streaks. The most notable data point is that in the three and six months following the prior nine times, we ended a five-month streak of 1%+ monthly gains (with a decline in the sixth month), and the S&P was higher every single time with pretty significant gains. (2)
(3)
We will know shortly if three and six-month returns following last month will continue to a 100% streak.
Is the "sell in May and go away" seasonality accurate as May starts? Investors shouldn’t necessarily “sell in May” because the market still averages gains during the summer months; it’s just that the gains are usually smaller than they are during the six months from November through April.
As shown below, if we look at a rolling six-month average percentage change for the S&P 500 across the calendar year using data from 1990-present, the single worst point on the calendar regarding forward six-month performance happens to be on April 29th. So yes, performance is usually weaker from a seasonal perspective over the upcoming six-month stretch.
(3)
Interestingly, May through October of Election Years is stronger than May through October of non-election years, so 2024 has that going for it regarding seasonality. Below is a chart showing the S&P 500’s average path throughout the May-October stretch since WW2 during Election Years (dark blue line) and non-election years (light blue line). The summer months have been much stronger during election years, while September and October have been weaker.
(3)
These are the reasons I don't advocate "sell in May and go away."
April Portfolio Changes
In April, we added three exchange-traded funds (ETF). These changes were made to increase portfolio alpha. We moved 4% of VanEck Morningstar Wide Moat ETF (MOAT) and 7% of Invesco S&P 100 Equal Weight ETF (EQWL) to 4% of Fidelity Fundamental Large Cap Core ETF (FFLC), 4% of iShares S&P 100 ETF (OEF), and 3% of iShares Core S&P 500 ETF (IVV). The percentage of change relies on your portfolio. The quoted percentage change is for our 100% stock ETF portfolios.
These changes were easy to make in retirement accounts since there are tax implications for making changes. Taxable accounts are different, and we are assessing the tax implications of these changes based on the 2024 projected tax return. Therefore, you may not see these changes due to tax implications. I talk about a lot about tax alpha. Tax alpha is the potential value created by the effective tax management of investments.
May Portfolio Possibilities
Currently, we don't have any portfolio changes considered for May. However, this is subject to change as always.
(1) Nasdaq.com
(2) Bespoke.com
(3) Chart by Bespoke.com
Schorn Wealth and Fiduciary Planning, LLC, believes all information in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This report is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, the past performance of any investment is not a guarantee of future results. Schorn Wealth's and Fiduciary Planning, LLC's representatives or clients may have positions in securities discussed or mentioned in its published content.