Consider The Potential Opportunity Costs Before You Sell In May And Go Away!
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View from the Observation Deck  
  1. The old axiom in the stock market about selling your stocks at the close of April and then buying back in at the start of November once made some sense from a seasonality standpoint.
  2. When the U.S. was more of an industrialized economy it was not uncommon for plants and factories to close for a month or longer in the summer to retool and allow employees to vacation.
  3. The theory was that companies would conduct less commerce in that six-month span, which would likely translate into lower earnings.
  4. Today, due in large part to globalization, the world is far more interconnected and competitive, and there is less room for downtime, in our opinion.
  5. From 2003 through 2021, there were just two instances (2008 & 2011) in which the S&P 500 Index posted a negative total return from May through October, and the 2008 occurrence was during the financial crisis.
  6. The average total return for the S&P 500 Index for the May-October periods in the table was 4.58%, which is nothing to run from, in our opinion.
  7. Sixteen of the 19 top-performing sectors in the table posted total returns in excess of 10.00% (May-October). For comparative purposes, from 1926-2021 (96 years), the S&P 500 Index posted an average annual total return of 10.46%, according to Ibbotson & Associates/Morningstar.
  8. The stock market has been navigating a number of significant headwinds for many months, including the ongoing global battle with COVID-19, supply-chain disruptions, the war between Russia and Ukraine, the spike in energy prices, surging inflation, and rising interest rates and bond yields. At any given time, it is easy to conjure up reasons to shun the stock market. The data in the table, however, is a reminder to investors that doing so can potentially come at a steep cost.         
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 companies representing a specific sector. 

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Posted on Thursday, April 14, 2022 @ 10:38 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.