Market Weather: Chilly Spring

weathermanSpringtime is here and Bay Area weather is changing. Financial markets have seasons, too. They can arrive early or late in any given year, but we know they are coming. One is approaching right now, in fact.

You may have heard the saying “Sell in May and go away.” The idea comes from a historical pattern traders observed decades ago. Stocks tend to perform better in the colder half of the year. The six-month period from November through April is typically better than May-October. Many studies show that buying stocks around Halloween and selling at the end of April brings better long-term returns and/or reduced risk.

This pattern is not evident every year, of course. May 1 and October 31 aren’t always the magical days. Like the weather, stock market seasonality is variable. Sometimes we get a warm spell in autumn, or a cold day in spring. As Mark Twain observed, “The coldest winter I ever spent was a summer in San Francisco.”

How does the financial weather look this year? The report is mixed. On the bullish side, the Federal Reserve is continuing its “quantitative easing” efforts. By force-feeding new money into the markets, the Fed keeps interest rates low and subsidizes risk-taking. Banks are lending and the economy is growing, albeit slowly. Wall Street can frolic in the sunshine.

At the same time, a cold front could still move through with little warning. As noted above, a typically weak seasonal period is about to begin. Corporate earnings are generally meeting expectations, but the second quarter could be a different story. Washington is practically paralyzed by partisan bickering. Europe still has no solution for its debt crisis.

A summer rally is always possible. If I were a TV weatherman, I would say the roads are safe but bring a jacket with you. As an investment advisor, I have similar advice: stay invested but exercise caution. Avoid unnecessary risks. The weather could change quickly. Focus on the long-term and manage risk.

-Rick

Welcome to My SoundBridge Thoughts Blog

MC910215899[1]If you are like me, you focus… on your personal interests as well as your financial success.  I am creating this series of articles, my thoughts, to inform and educate my clients and interested investors. I read voraciously every day. I stay informed of Global events and how they affect our financial future. I study history.  More importantly, I read the published academic and professional investment literature to stay abreast of financial insights. There is a lot of good information out there.

I have conducted my own in-depth professional research in the behavior of markets and investing for twelve years. My investment studies cover value, growth, trend following, momentum, business cycles and risk management. It is important to use basic theoretical ideas and judge success with empirical evidence.  My research involved creating many hundreds of hypothetical portfolios to test investment hypotheses.  The studies have covered various time periods depending upon the availability of reliable data. Some studies go back to 1999, others to 1987. My earliest research goes back to 1915 to understand investment behavior through two World Wars, depression, the market euphoria of the 1920s and 1990s and the challenges of the recent decade.

I will also provide ideas on executive compensation, retirement and other topics from my studies in the Accredited Wealth Management Program.

I will try to give you useful insights. If you find my thoughts interesting, please let me know. Send me an email. If you would like me to discuss a particular topic, I would be glad to, if I have the knowledge.

Quality long-term investing for your financial success.  That is my goal.

Thank you for reading.

Rick