The month of May was not kind to equity markets as the S&P 500 dropped 6%. International stocks were down for the month, too. The EAFE lost 5% while Emerging Markets were down 7%. Sell in May and go away? We don’t think so. The timing of the drop is luck more than anything else. Fingers have been pointed at the so-called trade war, various tweets, and the ever-present market “jitters”. All of these issues (real or imagined) have been part of the investing environment for over a year.
The truth is that no one really knows why the market moves one way or the other on a day-to-day basis. Bank of America Merrill Lynch’s Global Fund Manager Survey listed the following fears as the biggest tail risks going back to 2011: central bank policy mistakes, political populism, a Chinese hard landing, geopolitical crisis, a different Chinese hard landing, the US fiscal cliff, and EU sovereign debt funding. Despite that, the S&P 500 is up 14% over the last ten years, annualized, and almost 10%, annualized, over the last five years.
That doesn’t mean the bull market will continue forever. It’s easy to forget that equities were on the cusp of a bear market just 6 months ago, having dropped over 19%. The rapid recovery got less news coverage and despite May’s 6% pullback, the S&P 500 is still up over 10% year to date. Stick with a well thought out financial plan and mute the daily market noise.