A Look to the May Stock Markets

Published 05.06.2021

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Let’s begin with the usual recap of the last month, as April turned out to be a temperature check for markets and investors alike.

The Fed downplay: Thinking about thinking about it?

April ended with the Federal Reserve Chair Jerome Powell leaving the US central bank rate unchanged at near zero, which was no surprise to investors. Powell acknowledged the economy has gained strength, but noted that the recovery continues to remain uneven and incomplete. Really what he’s saying is the employment picture although improving isn’t fully clear yet. Remember the Fed has a maximum employment mandate, which seems to be temporarily more important than raising inflation. The million-dollar question, when will the Fed raise interest rates? Powell has been directly/indirectly asked this question too many times to count. Powell has been more steadfast than the best politicians and continued to stay on message that the Fed will remain accommodative with no rate increases expected for the remainder of the year. Critics argue that the economy will overheat, but the repercussions of tapering too early far outweighs the risks. Whenever the Fed finally decides to signal a rise in rates, rest assured it will be done in a methodical and deliberate way so that the markets can absorb it.

Blowout Earnings: Market response…Is that all you got?

This quarter’s earnings season came with some huge beats on top line (revenue), bottom line (Earning per share) and every other line in-between. The market was clearly anticipating the earnings beats on the back of conservative analyst estimates, which explains the subdued response by markets. As I mentioned before the market is in “pause” mode. It’s fatigued and needs to catch its breath and recalibrate, which is expected after such a massive rally over the last year. Apple is a perfect example of the markets current mood. The company reported blow out numbers highlighted by a 54% increase in sales, double-digit growth across product categories, dividend increase of 7% and 90 billion in share buybacks. Apple stock ended up trading down the following day which hints to the fact that earnings are playing catch up to current valuations. Like I said in March “The easy money’s been made, now it’s time to do your homework”.

Biden’s first 100 days: Vaccines, Spending and Taxes

The markets have liked what they’ve seen under President Biden. Since election day through to his 100th day in office the S&P 500 has risen 25%, better than any other president going back to the Eisenhower administration. To be fair, it’s been on the back of unprecedented stimulus and a reopening economy. Needless to say we’ll take it.

Another positive for markets has been hitting the Whitehouse’s goal of two hundred million vaccinations in the first one hundred days. Over half of all adult Americans have received at least one dose of the vaccine and all are now eligible. Clearly this has bolstered the reopening trade and given rise to positive sentiment. Biden held a fifty-seven percent approval rating (Gallup Data) at the hundred-day mark which historical isn’t that impressive, but enough for markets to approve at least for the time being.

Most arguably the biggest influence of Biden’s presidency so far has been his willingness to open up the governments wallet and spend. The trillion-dollar stimulus package has been followed up by another proposed two trillion-dollar infrastructure package. The trillions don’t stop there. Biden announced another initiative, the “American Families plan” which is slated at 1.8 trillion and includes support for children, students and families. Each spending package has received vast approval from the American public with over two thirds in support. Although all this stimulus comes with a catch, which includes proposed tax increases. The headline proposal has been the increase of the corporate tax to 28%. Although markets temporarily sold off on the announcement this wasn’t a huge surprise given it was part of Biden’s platform during the presidential campaign. The challenge for Biden has already begun to take shape in the senate as Republicans attempt to water down the proposals.

“Sell in May and go away”: Not so fast smarty pants!

What’s meant by “Sell in May and go away”? It is the long time adage that encourages investors to sell their stocks in May and buy them back in November due to the “seasonal” underperformance of the period. Unfortunately investing isn’t as easy as a silly saying. Over the past decade this period has actually on average produced positive returns for investors. But besides that, following this ridiculous adage plays right into investors worst habit, “Trying to market time”. For the overwhelming majority of investors this is a losing strategy in the long run. For investors who have adopted a sound investment framework, selling their quality companies due to the calendar month is preposterous. You’d probably be better off using astronomy or even tarot cards to make your investment decisions. Not to mention the added fees and potential tax implications investors will occur. I recommend investors don’t miss out on profits and invest for the long run. Forget about what month it is and focus on fundamentals and a sound investment strategy.

A side from that, until next month! And don’t forget to email me any questions you have and also, if you’re interested in having a chat about what I can do for you, get in touch. It is a very exciting time to be investing and I look forward to sharing it with you.


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