Buy in May and go away? Perhaps, now that we are all the way back and about to break out on all of this good news.
But let's take a moment to acknowledge how stupid something like sell in May really is, especially this year because May is turning out to be a pivotal month in the U.S. economy.
Every year people try to make statements about what will happen based on historic patterns. Every year I push back by saying that what matters is this year, not another year or any agglomeration of years.
This time it even more important because we are seeing lots of companies reported in April and they were incredibly downbeat. You can't blame them. Their forecasts were made during a period when most countries had not bent the curve and we were having endlessly negative headlines about hospitals as war zones and a tidal wave of covid coming your way.
So, when you heard their conference calls there were almost no companies that raised estimates. Instead you had a huge number of companies just plain abandon forecasting and a ton of companies eliminating their dividends.
In retrospect though, the last week of March and the first few weeks of April were the worst headlines and the biggest hammering of our economy. Unlike 2007, when the Fed knew nothing about what was really happening and then claimed it didn't have the tools needed to stop it, this Fed attacked the problem with a level of intensity that was shocking in its positive impact. Fed Chairman Powell basically backstopped a trillion dollars of bond issuance, that's the equivalent of all that was issued last year. In 2007 -2008 the Fed, Treasury and Congress let any bank fail that was troubled.
Jay Powell's the opposite. He let almost no bank fail.
In 2007 and 2008 many different markets froze up, commercial paper, the price of the mutual fund redemption, the mortgages and so many others.
In April, every time one of these financial horrors sprung up Powell didn't play a losing game of whackamole, he just told people to stop worrying, he would spend trillions defending every market. So those who were rooting to break these markets - including gutsy hedge funds making bets against these markets because that worked last time, and those might have been unworthy of credit another time - found that it was a sucker's game to take on Powell. The most amazing thing? He didn't even have to spent a lot of money. He saved the system by just telling everyone he was going to save the system.
At the same time, Treasury and Congress doled out $3 trillion in subsidies from direct payment of cash to paycheck protection to keep small- and medium-sized businesses alive.
All of these actions hit in the second half of April, too late for companies to include in their forecasts. It was surreal to see how much was done and how little people believed it matters. Hence the sell in May and go away dictum, which, once again, scared people.
I like to hark back to the days when the legendary Peter Lynch ruled the money management business from the helm of the Fidelity Magellan fund. Among the many great rules he had, Lynch believed that "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves" - hence the vapid nature of the sell in May dictum. Lynch also preached the need not to flit in and out because there were only a few days each year when all the money was made.
Today was one of them.
Now, all of those companies that were extremely negative in April have a much more compelling story to tell next time they talk. The despair that colored almost all reports is now busted as I think we will see when Walmart (WMT) and Home Depot (HD) and Target (TGT) report this week. The narrative has changed. All of those on the sidelines after the horrendous comments of execs last month must now ponder how do they get back in in May. I think it's too late. The big money's been made.