Is the Stock Market Headed for a Deeper Dive?
Investors buckle up as the stock market faces a turbulent ride. After months of soaring returns, the party seems to be coming to an end. The S&P 500 has shed more than 3% this month, marking its first monthly decline since October.
Are Stocks Still Overvalued?
Many experts are raising concerns that stocks may have run ahead of themselves, even after the recent pullback. Inflation remains a persistent thorn in the market’s side, and interest rates show no signs of easing anytime soon. Geopolitical tensions and indicators watched closely by market technicians are also flashing warning signals.
Mark Luschini, chief investment strategist at Janney Montgomery Scott, warns that “when you see a 5% drawdown, it’s rare for it to stop there. It typically mutates into something more in the order of 8% to 11%.”
“Sell in May and Go Away”
May has a reputation for being a bleak month for stocks. The strategy of “sell in May and go away” has long been favored by investors seeking to avoid seasonal weakness. According to the “Stock Trader’s Almanac,” the six months from May through October are historically the worst for markets.
Jeff Hirsch, editor-in-chief of the “Stock Trader’s Almanac,” has already dumped his positions in the Dow and S&P 500, citing a sell signal in a technical indicator. However, he remains optimistic about the long-term outlook and advises investors to review their portfolios.
Signs of Hope Amidst the Gloom
Not everyone is embracing the bearish sentiment. Ryan Detrick of Carson Group points out that stocks have actually risen in May in nine out of the last ten years. He also notes that stocks tend to perform well during the summer, especially during election years.
“The fact that we have a decent year going into this period, and it’s an election year, signals to us that we’re not anticipating a major weakness these next six months,” Detrick said.
Should You Panic?
While it’s tempting to panic during market downturns, experts emphasize the importance of remaining calm. Market corrections are a normal part of the investment process. Instead of making rash decisions, take this time to reassess your portfolio, trim losers, and consider adding exposure to sectors that may benefit from cyclicality, such as financials, industrials, and utilities.
Key Takeaways
- The stock market is facing headwinds due to high inflation, rising interest rates, and geopolitical risks.
- Experts warn that stocks may be overvalued and could fall further before finding a bottom.
- The “sell in May and go away” strategy suggests unloading equities in May and re-entering in the fall.
- Some experts remain positive about the long-term outlook and advise investors to evaluate their portfolios.
- Panic selling is not recommended. Instead, focus on rebalancing and seeking opportunities in undervalued sectors.
