met say That in the midst of the gloom and gloom of Wall Street, some investors were looking for hope in an unusual place: the seasonality of the stock market. At the beginning of April, as investors were concerned about rising inflation, monetary tightening And the war in Ukraine, analysts at Bank of America predicted a “strong rally” in the stock market, driven in part by the tendency for stock prices to outperform during the month of April. Unfortunately, the march did not materialize. Although the S&P 500 index of major US companies has generated a 1.41% return, on average, in April since 1928 — the second-best month after July — it has fallen 8.8% this year, its worst showing in a year 1970. In the year to date, the benchmark index has fallen by 13.3%.
However, there are some glimmers of hope. First, corporate profits remain good. S&P 500 companies have so far reported an average growth of 6.6% in second-quarter earnings, according to FactSet, the data provider. Second, many companies have large cash piles that can be used to make their stock more attractive through dividends, share buybacks, and acquisitions. Goldman Sachs believes that the value of buybacks among the S&P 500 will reach a record $1 trillion in 2022, up 12% from 2021. Third, although Consumer price inflation in America It hit a 40-year high of 8.5% in March, and many economists expect this to be the peak.
But investor sentiment is still bearish. Consider bond yields. The yield on 10-year Treasuries jumped from 1.5% at the end of 2021 to 2.9%, in part due to an expectation that the Fed will shrink its balance sheet to fight high inflation. Higher returns tend to hurt the price of technology stocks and growth stocks, which are expected to pay dividends far into the future. Higher yields have also put downward pressure on stock prices as borrowing costs have risen. They make dividend yields look less attractive and encourage investors to switch from riskier stocks to safer assets like government bonds. The difference between short-term and long-term interest rates has narrowed, which some interpret as a sign that a recession is on the way. Equity investors are also getting more cautious, adding “defensive” stocks, such as utilities or basic consumer goods, to their portfolios. The only sector that outperformed in 2022, amazingly, is energy. It generated a 34% return.
For those trying to time the market, caution is advised. The old adage “sell in may and go” may be reasonable advice for professional investors who need to steer clear of their trading desks. But in the past decade, the May-October S&P 500 divestment strategy didn’t turn a profit at all. ■
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