It's April 25th, 2011. So how do we approach this week? To begin with, we only have 6 calendar days before the media begins reminding you of the "sell in May, and go away" mantra, which follows that calendar discipline that suggests in most years, the bulk of the stock market's gains are produced during the November to Aprill period, while historically, the period from May to October has pretty much been a wash. However, over the 60 years for which the original study was done by Yale and Jeffrey Hirsch, the reverse thesis outperformed in 20 of those years. As we say, nothing is always - in life, or in the stock market.
There are probably a lot of reasons for this seasonal disparity in the market's actions. One being that the first of the year enthusiam sobers up somwhat as the second quarter earnings start dribbling out, and in these times, corporate managers want to make sure they don't get expectations for their performance set too high, so they put a cautious outlook out there. Of course, this makes tham look better as the end of the year expectations (November to April) start coming into view.
But whatever the reason, it is somewhat important to know that the easier part of the calendar year is over, so we now have to see how the future outlook appears. We want to be crystal clear - we DO NOT use that seasonal theory AT ALL in our analysis. Instead, we depend totally on the vision of our Asset Allocation Model for our outlook and allocation, regardless of the calendar. And here's what it's telling us this morning:
The matrix above is our bottom line. It helps us digest the risk-to-reward in the market at any given time, and today, it's telling us to have a 10% cash buffer. All things considered, we believe the next few months are going to give us a little lull, but it will set the stage for the dynamics of 2012 and 2013 as today's worries turn out a little better than today's pessimism is judging.
To view today's complete Market Comment, click here.
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