Will the stock market adage "sell in May and go away" prove to be a profitable strategy again in 2012? Not according to one market prognosticator.
For the last two years, selling in May would have helped investors. In 2010, the stock market peaked on April 23. And last year, it hit its high on April 29, according to research from Wells Capital Management, a division of Wells Fargo.
In the first quarter of 2012, the S&P 500 gained 12.6 percent, its largest first-quarter gain in 14 years.
So are we heading for déjà vu all over again, as Yogi Berra's financial adviser might put it?
This year could be different, says Jim Paulsen, chief investment strategist at Wells Capital Management. In May 2012, U.S. consumers are back on their feet; the Federal Reserve is encouraging spending by making money cheaper to borrow, and inflation seems to be under control, Paulsen says.
New data bear out an improving, if tepid, U.S. economy. The Conference Boards' Consumer Confidence Index just rose to a new post-financial crisis high, and auto sales recovered to about an average 15 million annual sales pace. Bank loans, which were absent during much of the first two years of this recovery, have risen steadily; and consumers are shrugging off their historic debt burden.
The U.S. household financial obligations ratio reported by the Federal Reserve — which includes all debt service payments, lease and rental payments, property taxes, and other factors — reached an all-time record high in 2007 of about 19 percent and was still 17.4 percent when the first spring swoon hit the market in early 2010.
Today, however, this key ratio has fallen below 16 percent and is closing in on a record low. All of this bodes well for the markets this year as of May 2012, adds Paulsen.
Moreover, 2012 is also a presidential election year, which has historically produced positive stock market returns. Since 1972, the stock market has rallied in five of eight election years, according to J.P. Morgan, with market gains of 12 percent to 26 percent. Only during recession election years (2000 and 2008) did the S&P 500 produce negative returns.
The Euro crisis also looks to have evolved into more of a chronic situation rather than a crisis, Paulsen says. For those looking to play a bounce in European markets, check out the SPDR EURO STOXX 50 Fund (symbol: FEZ), an exchange-traded index fund designed to track the performance of the 50 largest companies).
Women & Wealth
If you're a mother, wife, girlfriend, sister or a daughter (or know one!) who wants to get educated about money, here are some opportunities.
Well-heeled local investment firms aim to attract female clients with low-pressure seminars, covering topics such as budgeting basics. Sanford Bernstein's Maureen Austin last week hosted "Women and Investing: Planning and Investing in Uncertain Times" at the Philadelphia Country Club. Haverford Trust debuted a women-focused education series last year and the 2012 theme is "personal responsibility." Its ground rules promise no product sales pitches and "education only." Forthcoming events will be held on May 16th (how to reach an adviser's statements) and June 14th (budgeting boot camp) at Three Radnor Corporate Center, Suite 450, Radnor.
"A lot of times women are left out of the conversation about finances. And at a point when they have to be involved, they're often intimidated and don't know what questions to ask. You need to be able to take care of yourself," says Haverford Trust president Binney Wietlisbach.