There is no time in recent memory that we can recall so many major current events making headlines in such a short amount of time. In the last month the US has been following the Jodie Arias verdict, the Cleveland kidnapping, Benghazi whistleblowers testifying in front of Congress, a scandal at the IRS, wire taps at the AP and a guilty verdict in the Gosnell abortion case. Fortunately (or unfortunately depending on your long or short position), these headlines have taken a lot of attention away from the markets.
Spring time tends to bring about a certain mentality in the investment community referred to as “sell in May, go away.” One explanation for this moniker is that the weather is warm, the skies are clear, and families on both Wall St and Main St. are looking for ways to enjoy the outdoors and to go on vacation, but there is no clear technical reason as to why growth seems to subside in the warmer months of the year.
The aforementioned headlines have also detracted from some major economic headlines in recent weeks. Experts predict that the US budget deficit will come in at $200 billion lower than expected this fiscal year. On top of that, the Dow Jones Industrial Average reached all time highs this last week. In foreign markets, the Nikkei surpassed the 15,000 mark for the first time in 5 years. This is great news for investors who went in to the markets 8-9 months ago forecasting economic growth and stability, however summer may see a different hand play out.
As trading volume drops this summer, we expect to see a slight pull back in equities. There will certainly be some advisors and investors who will take their profits and sit on the gains until fall comes around, however we expect that there will be a number of advisors who missed this rally that will attempt to play the markets in an effort to window dress their portfolios.
While we predict a pullback, we by no means feel that it will be another 2008, just a minor 5-10% correction in equities. Unfortunately, the US economy has not fully recovered from the crisis we experienced in 2008, and we are not seeing headlines that are providing investors with the comfort that they need to buy back in to the markets. Furthermore, regulations and the costs associated with doing business have hindered some corporations from deploying capital, resulting in stagnant growth.
We want to remind investors that they need to look past the major headlines and look for the news that shows them the true nature of the economy and the markets. We feel that we are back on the right track, just at a slower pace than we would like. If our predictions are correct and we do see a pullback this summer, do not be discouraged or disheartened. Remember that your retirement is meant to be a nest egg, and over the course of time its value will ebb and flow. Look for the silver lining during a pullback; a drop in equities this summer means that there will be opportunities for value buys in the fall.