The old Wall Street adage “sell in May and go away” would not have been a good plan this year. The adage harkens back to a time when investors would leave for summer vacation and literally have no connectivity. Those time are gone. Most investors have not been through a pandemic in their lifetime, so we are taking this day to day. We were pleased to see the 12.7% rebound in April and wondered, with the economy still shutdown, if there might be some selling in May. Concerns about the virus and the closed economy did surface from time to time but, for the most part, May was a strong month with the S&P 500 regaining almost all the ground lost since the pandemic exploded in early March. At the end of the month the S&P 500 had gained 4.5% and is now down just 5.8% for the year. The tech heavy NASDAQ rallied into positive territory for the year and oil had its best month in history, nearly doubling during the month.
After the big gains in April we were not surprised to see the S&P 500 plunge nearly 3% on the first trading day of the month, but the first full week saw a strong rebound. During that week we started to see economies around the country begin to reopen and the market responded with a strong tech led rally that took the S&P 500 to a .6% gain at the end of the first 6 days of trading. The second full week saw more selling and was highlighted by a double barrel on Wednesday with Fed Chief Powell expressing concern about a prolonged recession, while noted investor David Tepper said the market was the second most overvalued he had ever seen. During the week we did see increasing tension with China and at the end of the week the S&P 500 had lost 2.3% and was lower for the month. The third full week saw an explosive 3% rally on Monday with news of positive test results in early trials for a couple of vaccine candidates. The remainder of the week had a positive tone as economies reopened and there was a lot of talk about vaccine development. At the end of the week the S&P 500 had managed to gain 3.2%. This holiday shortened week started with back to back rallies that saw the S&P 500 gain nearly 3% as investors appear to be willing to look beyond the current economic malaise to recovery. Disney World reopening and plans for several major league sports to resume added to the positive tone and the S&P 500 gained another 3%.
We have been somewhat perplexed at the disconnect between the economic reality and the stock market, but as the economy comes back it does seem like we get improving news every day. We learned a new word this week….hopeium….a good description of what may be driving the market. We have slowly, but steadily been raising cash into the rallies as we believe there will be an opportunity to deploy that cash at lower levels in the near future. Increasing tensions with China are a wildcard and something the market does not need as we fight our way through the pandemic. With that said, the massive amount of money being pumped into the market by our government and international investors, should help to contain any downside move. 10% to 15% down from current levels would seem reasonable and we will be buyers on such a move. Since this is our first pandemic our level of certainty is lower than normal, but it is clear the Federal government will do whatever is necessary to prevent this recession from deepening.
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