Is 2014 the Year to “Buy in May and be Prepared to Stay”?

One of the long standing adages on Wall Street is that investors would be wise to “Sell in May and Go Away” in most market environments.   This adage contends that stock volatility historically is higher during the months of May – October so investors may want to consider exiting the stock market in May, perhaps repositioning to less correlated asset classes, and returning to the stock market in November.  While we believe that asset allocation and investment discipline far outweigh any potential benefits of market timing over the long-term and long-term trends can often be disproved in certain short-term market cycles, it is hard to discount this adage entirely after a review of the data.   According to the research of Yale Hirsch, founder of the Stock Trader’s Almanac, based on 50 years of monthly stock market returns, the Dow Jones Industrial Average (DJIA) has experienced an average return of 0.3% during the “more volatile” May – October time period while experiencing an average return of 7.5% during the ‘less volatile” November – April time period.

We would contend, however, that this year is likely to be an exception to this adage and perhaps 2014 will be the year to “Buy in May and be Prepared to Stay” as it relates to global equities.   We believe that the market is poised to experience a strong second half of this year though there will likely be more intermittent bouts of short-term volatility.  We also contend that there is more upside potential beyond 2014 in this market cycle.  However, investors will need to challenge themselves going forward in this cycle to be very selective in terms of finding additional pockets of risk-adjusted return possibilities in a wide range of asset classes and sectors.  Our rationale at Hennion & Walsh in this regard is based on the following:

  1. Our view that volatility returned to the market during the 1st quarter due to heightened tensions and political discord in Washington, revised economic growth estimates in certain emerging markets, unrest in the Ukraine, trepidation over the direction of the Fed under Janet Yellen and concerns over first quarter earnings releases from U.S. companies.  As a result, many investors likely saw the resulting volatility as an opportunity to take some profits and move money out of the market during the first quarter.
  2. Our forecast of a high, single-digit gain for the S&P 500 index for 2014 by year end.  With this said, we also believe that U.S. stock market returns will likely be outpaced in 2014 by certain International – Developed Market returns (notably Europe) as they continue to emerge from their own recession.  With respect to Europe, we believe that the European Central Bank (ECB) will continue to keep rates low in an effort to help stimulate growth in the Eurozone. This is reminiscent of the early stages of the U.S.’s own quantitative easing program and therefore we would expect to see a sustained inflow of overall investment to the region.
  3. Our belief that we are in the midst of a secular bull market.  A secular bull market is generally referred to when the overall trend of the stock market is “bullish” longer term, lasting between 5 and 25 years.  During secular bull markets, stocks tend to rise in price more than they fall in price with the declines being less significant and offset by the subsequent increases in prices.  Since 1802, there have been 7 recognized secular bull markets.  The average length of these secular bull markets was over 14 years.

 Historical Secular Bull Markets

Time Period Duration (in years)
1815-1835 20
1843-1853 10
1861-1881 20
1896-1906 10
1921-1929 8
1949-1966 17
1982-2000 18
Average Secular Bull Market Length 14.71

Source:, “Secular Market Trends” article, April 29, 2014

To this end, we believe that March 9, 2009 marked the beginning of this most recent secular bull market, meaning that we are at least 9 years away from reaching the average secular bull market cycle.