“Sell in May, Go Away” Hang on Not This Year

“Sell in May, Go Away” Hang on Not This Year


FLASH: Go Away, Miss the Play

The S&P 500 is +17% YTD (4 months), and investors could be forgiven for thinking about taking profits ahead of the usual Summer doldrums. Not so fast, say analysts at Societe Generale.

“In our view, 2019 will be different,” Societe Generale strategists including the firm’s head of global asset allocation, wrote in a note Tuesday titled “Why ‘Sell in May and go away’ won’t work this year,” that I just read.

SG’s argument comes down to earnings downgrades.

While it is true that market performance is typically worse between May and September than at the beginning and end of the year, the pattern generally coincides with profit forecast cuts.

Earnings estimates are almost always too lofty at a year’s start, and the downgrades typically cluster in June and October, according to the strategists.

But given that profit forecasts were downgraded at the start of Y 2019, and now estimates are beginning to be revised higher as benchmarks reach records, further cuts in the Summer months appear unlikely.

“2019 will be different as we started the year with already quite pessimistic expectations,” the strategists wrote. “Going forward, we should see US earnings growth bottoming out, as we think it is too early for an earnings recession cycle.”

The firm sees room for the S&P 500 to rise to 3,000 near term, that is a 2% gainer from current marks.

HeffX-LTN’s overall technical outlook for the S&P 500 is Bullish to Very Bullish as we enter the month of May

Stay tuned…

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