A historically bad month has deepened the index’s losses for the year. It tumbled by 8.8%—but there are a few glimmers of hope for investors
that, amid the doom and gloom on Wall Street, some investors have been looking for hope in an unusual place: stockmarket seasonality. At the start of April, as investors fretted about rising inflation,and the war in Ukraine, analysts at Bank of America predicted a “solid rally” in the stockmarket, driven in part by the tendency for share prices to outperform during the month of April. Alas, the rally did not materialise.
There are a few glimmers of hope, however. First, corporate profits remain healthy. S&P 500 companies are so far reporting an average growth of 6.6% in first-quarter earnings, according to FactSet, a data provider. Second, many firms are sitting on big cash piles that they can use to make their shares more attractive with dividends, share buybacks and acquisitions.
But investor sentiment remains bearish. Consider bond yields. The yield on a ten-year Treasury bond has jumped from 1.5% at the end of 2021 to 2.9%, partly in the expectation that the Fed will shrink its balance-sheet to fight high inflation. Rising yields tend to hurt the share prices of tech firms and growth stocks, for which profits are expected far in the future. High yields also put downward pressure on share prices as borrowing costs rise.
For those attempting to time the market, caution is advisable. The old adage “sell in May and go away” may be sensible advice for professional investors who need to pull themselves away from their trading desks. But in the past decade the strategy of divesting from the S&P 500 from May to October has never made money.
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