To The Moon

The S&P 500's 0.76% decline in April has investors whispering the old adage: "Sell in May and go away." But before you liquidate your portfolio and head for the sidelines, let’s examine whether this seasonal strategy still holds water—or if staying put (or even buying the dip) might be the smarter play.

The "Sell in May" Myth: Does It Still Work?

The "Sell in May" strategy stems from historical data showing that stocks tend to underperform between May and October. Since 1950, the S&P 500 has averaged a +1.7% return from November-April versus just +0.8% from May-October. But here’s the catch: markets don’t always follow the script.

• 2023 Example: The S&P 500 gained 8% from May-October, defying the seasonal slump.

• 2022 Exception: The index plunged 15% in the same period amid Fed rate hikes.

The takeaway? Blindly following seasonal trends is risky. Instead, investors should weigh macro conditions, valuations, and earnings trends before making moves.

Why Holding (or Buying) Might Be the Right Call

1. Corporate Earnings Are Strong

Despite April’s dip, Q1 earnings have largely beaten expectations. Big Tech (Microsoft, Meta, Google) posted solid results, while cyclical sectors like industrials and energy also showed resilience. If earnings hold up, the market could rebound—especially if the Fed signals rate cuts later this year.

2. The Fed Factor: Rate Cuts Looming?

The market’s April stumble was partly due to sticky inflation fears, pushing back expectations for Fed rate cuts. However, if inflation cools in the coming months (as some economists predict), the Fed could pivot—triggering a relief rally.

3. Historical Rebound Potential

Since 1990, the S&P 500 has averaged a 6.5% gain in the 6 months following a down April. While past performance isn’t a guarantee, it suggests that panic-selling in May could mean missing a rebound.

Stocks to Watch: Where to Deploy Cash If You Hold

If you’re leaning toward staying invested (or buying the dip), here are three high-conviction sectors:

1. Tech (AI & Cloud Leaders)

• Nvidia (NVDA) $NVIDIA(NVDA)$ : Still the undisputed AI chip king, trading at a more reasonable valuation post-correction.

• Microsoft (MSFT): Azure cloud growth + OpenAI integration = long-term upside.

2. Cyclicals (If the Economy Holds Up)

• Caterpillar (CAT) $Caterpillar(CAT)$ : Infrastructure spending and global recovery could boost heavy machinery demand.

• Visa (V) $Visa(V)$ : Consumer spending remains strong; high-margin business model.

3. Dividend Growers (Defensive Plays)

• Johnson & Johnson (JNJ) $Johnson & Johnson(JNJ)$ : Reliable healthcare giant with a 3%+ yield.

• PepsiCo (PEP) $Pepsi(PEP)$ : Resilient demand, pricing power, and consistent dividend hikes.

The Bear Case: When Selling Makes Sense

Of course, there are scenarios where trimming exposure could be wise:

• If inflation reaccelerates, forcing the Fed to stay hawkish.

• If earnings deteriorate in Q2, signaling a profit recession.

• Geopolitical shocks (e.g., oil supply disruptions, China-Taiwan tensions).

For traders with a shorter time horizon, taking some profits in May and rotating into cash or defensive ETFs (e.g., XLP, XLU) $Consumer Staples Select Sector SPDR Fund(XLP)$ might be prudent.

Final Verdict: Stay Selective, Not Dogmatic

The "Sell in May" strategy is a blunt instrument in a market that rewards nuance. Instead of blindly exiting, consider: ✔ Rebalancing (trim winners, add to undervalued sectors). ✔ Dollar-cost averaging if you’re bullish long-term. ✔ Hedging with options or inverse ETFs if you’re cautious.

For long-term investors, time in the market beats timing the market. But if you’re sitting on big gains, locking in some profits isn’t a bad idea.

Bottom Line: April’s dip doesn’t guarantee a summer slump. Focus on fundamentals, not folklore.

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