Sell in May and Go Away?

Tuesday, May 29, 2018 – As we approach the end of May, recent market moves and some historical perspective are important, but the traditional rhyme “sell in May and go away” might prove unsatisfying to some investors. While the S&P 500 is up over 3% for this month, the small-cap Russell 2000 Index has lagged, reversing a recent stretch of outperformance. Energy shares performed worst within the S&P 500 Index, while Utilities recorded solid gains as longer-term bond yields fell, making their relatively high dividend yields more attractive.

In general, the U.S. markets edged slightly higher last week, driven by several key factors. Trade negotiations with China prompted swings between optimism and pessimism, while ongoing diplomatic tensions with North Korea weighed heavily on the market's mood. The Fed’s decision on interest rates was also in focus, signaling that the path of gradually rising rates remains intact. Of particular note are the prospects of inflation temporarily running slightly above their long-term 2% target, providing some comfort to investors. Meanwhile, corporate earnings are rising at a strong pace. While prevalent risks are likely to drive further volatility, the combination of a healthy consumer and healthier bottom lines for businesses provide support for the market.

The week was perhaps most notable for the nosedive in oil prices and energy shares. On Monday, oil prices reached their highest level since late 2014 - mostly due to the speculation that the U.S. would impose new sanctions on Venezuela after the country’s leadership congealed its control in allegedly corrupt elections. Ironically, the threat of U.S. sanctions appeared to be partly at work in this case as well, with some speculating that OPEC was seeking to compensate for the loss of Iranian and Venezuelan supply.

These key market highlights were reflected our ETF Global dynamic and prospective Quant Rankings. The week’s winners include both iShares U.S. Energy ETF (IYE) and iShares Global Energy ETF (IXC) both gaining approximately 15% in their respective total Quant Score. The biggest drop in ETFG Quant ratings were SPDR Portfolio Emerging Markets (SPEM) and iShares Currency Hedged MSCI South Korea ETF (HEWY). Looking ahead, economic data in the coming week will be plentiful, with May's jobs report and construction spending all being reported on Friday. For those investors looking for a real winner for their portfolio, with a total Quant Score of 82.42 the WisdomTree U.S. MidCap Dividend Fund (DON) is expected have the most potential in capturing positive market movements.

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