Every year, the television networks want to know if we’re selling in May and then going away until the summer is over.
It’s a trick question. Yes, summer was historically a slow season on Wall Street and, yes, the market looks especially unlikely to provide an attractive risk-adjusted return in the next few months.
But I’m not seeing any signals that stocks are going to get significantly cheaper between now and September. They just aren’t likely to go a whole lot higher over that time frame.
In other words, there isn’t a lot of incentive to liquidate your portfolio or buy a lot of stock right now either. And in that scenario, a smart investor doesn’t shift course.
When Autopilot Takes Over
There are only three good reasons to sell a stock. The first is simple. When you uncover an opportunity where your money can work more productively, it’s good to shift gears.
That’s not what people mean when they talk about selling in May. We’re talking about simply rotating among areas of the market here, moving from relative weakness to relative strength.
It is the kind of approach that drives my newly launched Triple-Digit Trader… keep pivoting to the hot spots while they’re hot.
Subscribers there just cashed an options trade that generated a 2,500% annualized return. Admittedly, we weren’t there for a full year, so the absolute number was a whole lot lower than 2,500%.
But day by day, you want to carve as many of these accelerated upward paths out of the year as you can. Capture enough leaps and the lurches will take care of themselves.
(You can see how I do it by watching this video.)
Then there are moments when you simply want to liberate cash to spend. That’s a decision wholly separate from market conditions.
It is a lifestyle choice. The only thing I have to say here is that if you can lock in the right dividend situation, you may never need to sell a single share to pay the bills.
That’s where my Value Authority trading service shines. In good markets and bad, these stocks keep cash flowing straight to shareholders.
And then there are the moments when you’re convinced your stocks are going down and nothing on Wall Street looks attractive as a replacement.
Sometimes all stocks drop in unison and remain depressed for weeks, months or even years. In that scenario, cash is king until the market mood recovers.
That’s the sell signal I’m not seeing here.
‘Hold’ In May
I think we can all agree that there’s little reason to buy the market as a whole here at 22X projected S&P 500 earnings. While the current cycle of quarterly corporate reports has been good, expectations were already high.
After all, last year’s pandemic numbers were terrible, making the year-over-year comparisons extremely easy. In some cases, all a company really had to do to hit its guidance was take enough of the Fed’s money to survive the lockdowns.
But stock prices already reflect the Fed shoveling cash into the market. Unless interest rates drop below zero, we’re unlikely to see S&P 500 earnings multiples swell much beyond their current level.
And if multiples have hit a wall, earnings expectations need to expand, which is where the calendar becomes a factor.
Now that Apple Inc. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN) and the rest of the trillion-dollar giants have reported their numbers, earnings season is effectively over as far as the market as a whole is concerned.
Individual stocks can still hit or miss their targets and be rewarded or punished in response. But until we hear back from the giants, the trend is already clear.
And the giants won’t report again until late July. Their trajectories for much of the summer are now set.
While the stocks can drift, they’re unlikely to make any decisive moves in either direction. And with no immediate reason to buy or sell, there’s no reason to spend a lot of effort watching AAPL and AMZN drift.
In three months, the picture may change. Stimulus could change the economic landscape. Otherwise, near-term risks and long-term rewards are roughly balanced.
P.S. Orlando MoneyShow, Championsgate Resort, June 10-12: The MoneyShow is back in person! Speakers not only include me but Larry Kudlow, Mark Skousen, Bob Carlson, Jon Najarian, Jeffrey Saut, Jeff Hirsch and Louis Navallier. Click here to register or call 1-800-970-4355 and mention priority code 052705 to attend for free.
CANNABIS CORNER: Riding The Big Bounce
It is gratifying to see that cannabis stocks remain open to both extremes of ambient market volatility. When the mood swings against them, they crumple. We’ve seen a lot of that in recent months.
But when sentiment becomes more expansive, these stocks shine. That was the case this week, with my proprietary cannabis index surging 5%, while the broad market stalled.
Of course, there are relative winners and losers in any week. Canopy Growth Corp. (NASDAQ:CGC) is actually down nearly 2% since last Friday.
However, CGC has emerged as one of the weakest stocks in the group. It is one of the largest and a lot of traders simply believe that it’s “boring.”
Boredom is not why people invest in cannabis, so it’s not surprising to see CGC up only 9% year to date (YTD), trailing just about everything else in the industry.
OrganiGram Holdings Inc. (NASDAQ:OGI), CannTrust Holdings (OTC:CNTTQ), Aphria Corp. (NASDAQ:APHA) and Tilray Corp. (NASDAQ:TLRY) all have at least doubled in the last four months.
That’s the opposite of boredom. And it’s why I prefer a balanced approach to any volatile theme.
Pick the right industry and there will be huge winners to capture. There also will be a lot of dead money along the way.
You want to make sure you have the winners in your portfolio. Otherwise, you miss all the fun.
I take a portfolio-focused approach to IPO Edge, where cannabis is only a small piece of a unified buy list. We’re like a venture capital fund in that way, confident that triple-digit-percentage wins will more than compensate for a few missed swings along the way.