Many people have been asking me if they should sell in May and go away based on an old Wall Street strategy that the best performing months of the year for equities is from late October to late April. Currently the S&P 500 is now up against that resistance line formed by two previous major tops in 2000 and 2007. This 13-year formation has been very trying for not only for me but our clients.
The results of this period have prompted the Baby Boomers to sell their stocks and go to cash based on the misplaced safety factor. This doom and gloom contingent has clouded realistic thinking. But what if these guys are wrong (which they always are) and a 1982 look alike comes to pass? The problems are different, but the mood is certainly similar.
Let’s look at gold as an example. Before 1980, the price of gold had been soaring as fear was rising, but strangely enough in 1980 the price of gold plummeted. By August of 1982, with unemployment soaring, inflation seemingly going to explode and the great economist of the era stated that the economy would never recover; we started the most powerful 18-year bull market in history.
Gold has plummeted and comparing the charts from 1980 to 1982 the similarities are almost identical. The S&P earnings this season have been historically high; however sentiment has been historically low. Remember when the Dow broke through 10,000 and celebrations on the floor of the exchanged looked like a New Year’s Eve celebration? Now we are experiencing new all-time highs and all we get is, “when is the pullback going to happen?” and the cash under the mattress keeps causing larger lumps and unrestfull sleep.
What if this is a new 1982? Remember I am an observer not a predictor. History does not repeat itself but it sure does rhyme.