Wiz Daily Journal
How to Use the "Best Six Months" Strategy To Get “P.A.I.D.”
Monday, May 13th, 2024
How to Use the "Best Six Months" Strategy To Get “P.A.I.D.”
Sell in May and go away and come back on St. Leger’s Day.
Most ATWWI FAMILY MEMBERS have probably heard that investing “ADAGE”. Or at least the first half of it. The question today is, is it still relevant???
The saying is centuries old..AND, for those who are unfamiliar, St. LEGER DAY Day is the date of a classic horse race in ENGLAND that’s run every September.
LONDON bankers and merchants would “SELL” their shares BEFORE summer arrived and retire to the country. In late September (after the big race), they would return to the city and engage the stock market.
The analog in modern times is WALL STREET TRADERS “TRIMMING” their positions in late May BEFORE heading to the Hamptons (or better, the Jersey Shore) for the summer.
Over the years this saying has held up well enough…
In the 72 years from 1950 to 2022, the AVERAGE GAIN in the DOW from November 1 through the end of April has been 7.3%. That plummets to 0.8% for the May 1 to October 31 period.
That may not seem too dramatic of a difference, but if you COMPOUND that over seven (7) decades it’s massive!!!
Investing $10,000 in 1950 in the S&P 500 in just the May-October months would have resulted in a NET GAIN of $3,300 by 2022.
Investing the same amount in 1950 in just the November-April timeframe would have brought you about $977,000!!!
The “BEST SIX MONTHS” strategy continues to be “EYE-POPPING”!!!
So, indeed, why not cull some “RISK” from your portfolio in May BEFORE summer “DOLDRUMS”, LOW VOLUMES and “UNINSPIRED” TRADING take hold…
AND, then return to a “RISK-ON” position when autumn breezes begin to blow, and the leaves start to turn.
NOTE: Here, in the U.S. this trading idea has also come to be known as the “HOLLOWEEN STRATEGY” – that is, start buying stocks again when you see JACK-O-LATERNS.
Such “SEASONAL” trading patterns have faded a bit, of course, due to cultural shifts and technology.
Few investors take the whole summer off these days… AND, you no longer need to be at a desk in downtown Manhattan to “BUY” and “SELL” stocks. Today, most people can trade on their mobile phones.
As a result, while April remains very kind to investors, July has switched from “BEARISH” to “BULLISH” over the last two (2) decades.
Still, markets have continued to STAGNATE or ”SUFFER” in May, June, August and, September.
It’s clear that last year (2023) was somewhat “TYPICAL”…
The market peaked in late July and then dropped by more than 10% through the end of October. It turned up again just as it became time to put out HALLOWEEN decorations.
So “SELL IN MAY” still holds some “WISDOM” for YOU, ME, WE the ATWWI FAMILY. Certainly June, August and September look like good months for investors to keep their money out of equities… AND, HALLOWEEN remains an excellent opportunity to collect both “CANDY” and “NEW SHARES/OPTIONS.
What About LONG TERM ATWWI Investors???
If you’re in the market for the LONG TERM – as most smart investors are (unless they are very near retirement) – “SEASONAL” patterns mean a lot less.
With so many “TRANSFORMATIVE” technologies – from ARTIFICIAL INTELLIGENCE (AI) and ROBOTICS to GENOMICS and EDGE COMPUTING – now surfacing in the economy and the stock market, YOU, ME, WE the ATWWI FAMILY will want to be invested and stay invested in “MEGATREND” companies that provide or employ them.
An “INTELLIGENT” strategy is to reexamine our portfolios in early May, “SELL” some of the positions that haven’t worked out as we anticipated/expected and put that money to use in assets that provide better PROFITS/YIELDS. For example, the three-month TREASURY right now yields 5.4%.
Better yet, put those funds into stocks associated with the “MEGATRENDS” I detailed above. I have been identifying these “MEGATREND” companies all year long.
Those stocks are good for the long run and will weather any “SEASONAL” trading patterns.
PEACE & BLESSINGS
Kenneth Reaves, Ph.D.
U.S. Job Market: Slowing Down or Just Catching Its Breath???
Friday, May 10th, 2024
U.S. Job Market: Slowing Down or Just Catching Its Breath???
This week, we got another example of an enduring “PARADOX” on WALL STREET: how “BAD” news is often perceived as “GOOD” news.
To the average individual, news of INCREASING joblessness provokes concern and anxiety. It suggests economic instability, personal hardship, and a downturn in consumer spending.
YET, on WALL STREET, this seemingly “BLEAK” development can trigger optimism and market rallies.
The fact is, economic indicators are not assessed in isolation but in COMPARISON to market expectations.
Case in point: The latest report on U.S. WEEKLY JOBLESS CLAIMS, released yesterday (Thursday, May 9th, 2024), came in at a peppy 231,000, their HIGHEST LEVEL since August 2023.
The UNEMPLOYMENT RATE INCREASED from 3.8% to 3.9%.
This data suggests a labor market that’s catching its breath after a long sprint (see chart).
Source: U.S. Department of Labor
This sudden uptick suggests emerging “SOFTNESS” in the U.S. labor market, but it also gives the FED justification to take a more “DOVISH” stance on monetary policy. This surplus of labor creates downward pressure on wages as workers compete for fewer positions, ultimately curbing inflation because it dampens overall wage growth across the economy.
That said, jobs growth remains healthy enough to sustain the stock market rally. While challenges persist, including ongoing supply chain disruptions, the fundamentals are sound. The moderation in jobs growth acts as a “STABILIZING FORCE”, tempering inflationary pressures while preserving the conditions for continued economic expansion.
The U.S. economy remains “ROBUST”, buoyed by strong consumer spending, business investment, and continued fiscal support.
While changing employment dynamics can inject “VOLATILITY” into certain sectors, it also fosters investment opportunities. This shift in employment dynamics should drive sector rotation within the equity market.
For instance, sectors heavily reliant on consumer spending, such as retail and leisure, are likely to experience increased “VOLATILITY” as unemployment rises. Conversely, I expect sectors linked to essential goods and services, such as health care and utilities, to demonstrate more “RESILIENCE”.
As employment numbers COOL OFF, TREASURY YIELDS are starting to head south across the curve, with the 30-year U.S. TREASURY YIELD falling. That’s a favorable development as well.
Looking ahead, we have got INFLATION stepping into the spotlight next week (May 13th-17th, 2024) with the CONSUMER PRICE INDEX (CPI) for April (2024), slated for release on Wednesday (May 15th, 2024).
After the CPI’s earlier surprise performances this year (2024), the oddsmakers are betting that both headline and CORE CPI INFLATION will show evidence of cooling off a bit in April (2024).
The forecast is for CORE INFLATION, excluding food and energy, to take a breather with a modest 0.3% INCREASE, a welcome change from three (3) straight months of 0.4% INCREASES.
On an annual basis, CORE CPI is expected to slide down to 3.6% from 3.8%, while HEADLINE CPI is slated to dip to 3.4% from 3.5%.
The FED will need a few encouraging INFLATION readings before it feels comfortable enough for a RATE CUT. Expectations are RISING that we will hit that “SWEET SPOT” by the end of the year (2024). Until then, WALL STREET will be on edge.
Keep in mind, the appeal of returning economic equilibrium extends beyond domestic borders. Stable economic conditions in major economies such as the United States exert positive ripple effects WORLDWIDE...
INTERNATIONAL MARKETS have been rebounding, especially as economic news from CHINA becomes more favorable. Most investors tend to be UNDERWEIGHT international equities and would benefit from evaluating the domestic and international mix in their portfolios.
The main U.S. stock market indices closed mixed today (Friday, May 10th, 2024) as follows:
- DJIA: +0.32%
- S&P 500: +0.16%
- NASDAQ: -0.03%
- Russell 2000: -0.67%
Under current conditions, I particularly like HEALTH CARE stocks right now. The demand for medical services and pharmaceutical products tends to be relatively stable, driven more by demographic trends and health needs than by economic cycles and the whims of the U.S. central bank.
UTILITIES represent another sector poised for relative stability and growth this year (2024). These companies provide “ESSENTIAL” services such as ELECTRICITY, WATER and, GAS which are NECESSARY regardless of economic conditions.
Consequently, UTILITIES often exhibit “DEFENSIVE” characteristics, offering YOU, ME, WE the ATWWI FAMILY a potential “HEDGE” against broader market “VOLATILITY”. UTILITIES typically generate steady CASH FLOWS and offer attractive DIVIDEND YIELDS, making them appealing to ATWWI FAMILY MEMBERS seeking INCOME “STABILITY”.
PEACE & BLESSINGS
Kenneth Reaves, Ph.D.
CHARLES DOW: One of the “GREAT” Minds of the Market
Thursday, May 9th, 2024
CHARLES DOW: One of the “GREAT” Minds of the Market
The BEST investors are always educating themselves.
They often familiarize themselves with the GREAT men and women – often unknown – who shaped the modern investment landscape.
Why should you care about these individuals, especially since many of them have “TRANSITIONED” (aka; died) long ago???
Because Sir Francis Bacon was right with a “SLIGHT” modification: KNOWLEDGE and the UTILIZE/APPLICATION of KNOWLEDGE is POWER!!!
This is especially true in the financial markets… AND, the type of KNOWLEDGE you ACCUMULATE AND UTILIZE is the primary determinant of your success as an investor.
Consider a man whose name is legendary on Wall Street: CHARLES DOW
DOW is a significant figure in the annals of financial HIStory for two (2) reasons…
He created the first financial “BIBLE”, The WALL STREET JOURNAL (WSJ), and the first market “BAROMETER” the DOW JONES INDUSTRIAL AVERAGE.
In doing so, he “REVOLUTIONIZED” the way we talk about financial markets.
By the way… CHARLES DOW is sometimes credited with creating DOW THEORY too… NOT TRUE!!!
The “MARKET TIMING” strategy was extracted from his WSJ editorials 20 years AFTER his “TRANSITION” (aka: death) by a market technician named WILLIAM P. HAMILTON.
CHARLES DOW founded DOW, JONES & COMPANY with a partner in New York in 1882.
At the time, most financial data was simply outdated news and unreliable gossip.
But the DOW JONES COMPANY company published daily financial updates in a two-page newspaper called the CUSTOMER’S AFTERNOON LETTER the WALL STREET JOURNAL’s predecessor.
It was in the “LETTER” that DOW first published his average, initially comprised of 14 companies – 12 railroads and two (2) industrials.
Today the DOW consists of 30 large companies meant to reflect the U.S. economy. (There are, however, few holdings in heavy industry – and no railroads.)
The AVERAGE, PRICE-WEIGHTED to compensate for STOCK SPLITS and other “ADJUSTMENTS”, is the most closely watched benchmark for tracking stock market activity.
Yet the DOW is actually a “POOR” representation of the “BROAD MARKET”.
If you are looking to capture its performance, you are much better off owning the better diversified S&P 500 (SPY) or the Wilshire 5000 (TMW).
The important thing to learn from CHARLES DOW is the “PRIMACY” of financial information.
More than a hundred years ago, he realized that it was “ESSENTIAL” for investors to have not just opinions, rumors and forecasts but “VERIFIABLE” facts.
Those are not always easy to obtain today with the ascendancy of blogs and especially social media, which puts every ”IDIOT” in touch with every other “IDIOT”.
To “BEAT” the market, YOU, ME, WE the ATWWI FAMILY must simply be well informed and up todate beyond this week’s headlines.
I have known people who will buy a stock and then not keep abreast of the direction of SALES, the GROWTH IN PROFITS or even how the company is PERFORMING relative to its competitors.
This is an act of “FAITH”/”HOPE” not RATIONAL INVESTING!!!
CHARLES DOW created a daily business publication to give investors the “ESSENTIAL” FACTS they need.
Of course, today we all get our information in “REAL TIME” via modern technology.
BUT, the IMPORTANT data is NOT today’s government statistics or some new pronouncement by JEROME POWELL. This is mere “TRIVIA” in the longer term.
REAL “VALUE” is found in the “HARD NUMBERS” that tell YOU, ME, WE the ATWWI FAMILY how individual businesses are PERFORMING.
That means the kind of investment news you consume is “CRUCIAL”.
“LISTEN” to economic analysts, for example, and you will hear “GLOOM and DOOM” about STICKY INFLATION, RISING WAGES and, the “LIKELIHOOD/UNLIKELIHOOD of a FED RATE CUTE.
“LISTEN” to market analysts (aka; “TALKING HEADS) and you will hear “TRIVIA” about SHORT-TERM TRENDS, CHANGES IN VOLUME, SUPPPORT and RESISTANCE LEVELS and so on.
This is NOT the type of information that will not make you “WEALTHY”.
HOWEVER, if you “LISTEN” to business leaders, you will learn plenty about SCIENTIFIC INNOVATIONS, INCREASES IN PRODUCTIVITY, NEW TECHNOLOGIES, MARKET SHARE and, not least of all… CORPORATE SALES and EARNINGS.
In short, when YOU, ME, WE the ATWWI FAMILY “LISTEN” to CORPORATE PRESIDENTS and CEO’s we will do a lot better than those who follow economic “FORECASTERS” and “MARKET TIMERS”.
CHARLES DOW knew this. We should, too…
PEACE & BLESSINGS
Kenneth Reaves, Ph.D.
Checking In On The “MAGNIFICENT SEVEN”
Wednesday, May 8th, 2024
Checking In On The “MAGNIFICENT SEVEN”
Are “THE SEVEN” still MAGNIFICENT???
The so-called “MAGNIFICENT SEVEN” megacap technology companies share prices have soared in recent years.
These are chipmaker Nvidia (NVDA), software giant Microsoft (MSFT), online retailer Amazon (AMZN), Google parent company Alphabet (GOOG), laptop and mobile phone behemoth Apple (AAPL), Facebook parent company Meta Platforms (META) and carmaker Tesla (TSLA).
Individually, these seven (7) companies are important because each of them offers new technologies and innovations that have the power to alter our society and raise our standards of living. They are putting the newest technologies – ranging from artificial intelligence (AI) to cloud computing to the Internet of Things and driverless automation – to work in the products and services they offer.
Collectively, they are also important because they have powered this “BULL” market to many new “ALL-TIME” HIGHS over the past year and a half.
That makes it very worthwhile to periodically check in on how these companies and their stocks are faring in this volatile market. Because if they falter, it’s a pretty good indication that this “BULL” market will also stumble.
Here’s how the stocks have fared year-to-date versus the S&P 500…
Earnings Season
We are about halfway through the first quarter EARNINGS SEASON, and several of the companies I listed above have reported results. A few are yet to come, but more on that in a moment.
Quarterly results are particularly important for these companies because investors have “BID” their stock prices HIGHER… to the heavens, in the case of Nvidia, which is up nearly 600% since this “BULL” market began in October 2022.
AND now – similar to an NFL team that expects its handsomely-paid stars to perform – those investors are “DEMANDING” strong performances from these companies. Likely in the form of robust SALES and PROFIT GROWTH to justify the enormous premiums they paid.
So far, the results have been MIXED...
Microsoft and Alphabet both reported results last week and both “BEAT” EARNINGS expectations. The two (2) stocks got an initial boost, but then settled back a bit. Given the prices paid, it seems that investors want to see more from each.
Meta Platforms also reported results last week and it also “BEAT” Wall Street’s estimates for earnings. BUT, its guidance (what it expects for the rest of the year in terms of revenue) was not as high as expected. That sent the stock DOWN about 13% in recent days.
Tesla posted terrible first quarter earnings (its worst performance in several years), and the shares are down more than 25% this year. Yet the stock soared on comments made by CEO Elon Musk that the carmaker will accelerate its rollout of cheaper models. It seems Musk has a unique ability to charm his stock upward despite poor results…
AND this week.. Amazon reported that first quarter revenue rose 13% to reach $143 billion – an “ALL-TIME” HIGH. Earnings for the quarter were TRIPLE from a year ago (2023) and 18% HIGHER than expectations. Shares “RALLIED” on the news.
Apple announced its quarterly results Tuesday (May 2nd, 2024) after market close. The average earnings estimate from analysts was for $1.50 a share, just about what it earned in the same quarter a year ago (2023).
The company needed a “STRONG” report – including good forward guidance – to get the stock out of negative territory for the year. It continues to suffer from weak sales of its iPhone 15 and problems it is having in the Chinese market.
Apple soared on a record buyback and earnings that were better than feared.
Lastly, Nvidia…
The MOST “MAGNIFICENT”
Potentially the most IMPORTANT of these seven (7) stocks is Nvidia. It will report first quarter earnings on Wednesday, May 22nd, 2024 and investors have very HIGH “HOPES”. The company is expected to report revenue of $24 billion and earnings of $5.54 a share, with some analysts expecting more than $6 a share. Anything near that HIGHER estimate should send the stock much HIGHER.
Because of the firm’s sheer size (a market cap of $2.2 trillion), epic share price rise in recent years, and centrality to the AI “MANIA” that has enthralled the market, the release Nvidia’s results later this month (MAY) will be MASSIVE… and will likely move the ENTIRE market.
HOLD ON…TIGHT!!!
PEACE & BLESSINGS
Kenneth Reaves, Ph.D.
“WEALTH” Is NOT Measured By Salary
Tuesday, May 7th, 2024
“WEALTH” Is NOT Measured By Salary
Three weeks ago, I saw a story on the CNBC website titled: This is the salary it takes to be considered rich in every state (click on link below):
The article asked, “What does it take to be considered rich in America?” It then defined “RICH” as being among the Top 5% of earners. In Connecticut, for example, that number was $656,000 a year. In many southern states, the number was below $400,000, but it wasn’t below $300,00 anywhere.
I thought ..What an odd premise. “WEALTH” is NOT defined by salary.” I know many people who earn six or even seven figures, and they have a NEGATIVE NET WORTH. They spend MORE than they earn.
Such people often go bankrupt, despite high salaries. According to most people’s OVERSTANDING/UNDERSTANDING of “WEALTH”, those people are NOT “WEALTHY”.
At the other end of the spectrum are those with five (5) figure salaries who scrimp, save, and invest their way to millions of dollars. Who is “WEALTHIER” ???
The frugal secretary who amassed a fortune of $9 million, or the NFL football player who earns millions, spends more than that, and goes bankrupt???
Do not be discouraged if you don’t have a HIGH salary. There are numerous millionaires in this country whose salary never approaches those CNBC values. True, it is easier to build “WEALTH” with a HIGH salary — as long as you MANAGE YOUR SPENDING.
It’s all about making sure you have MORE “CASH” COMING IN THAN GOING OUT!!!
That can be done by people across the salary spectrum. It may require more “SACRIFICE” and more time.. BUT, it is DEFINITELY “DOABLE”.
PEACE & BLESSINGS,
Kenneth Reaves, Ph.D.
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