“Sell in May, and then take a vacation to someplace not hot or muggy” is the saying, or something like it, that has guided the market on and off at this time of the year for, well, ever since the saying came into play, whenever that was. Last year, the maxim did not apply, but it did in 2012, 2011, and 2010 for sure.

Wait a minute! Maybe we should have gone away in the late summer and early fall of those years as well, and maybe even March and April of the last three. Oh well, as another saying goes, “Day in and day out, the market does what the market does whenever the market wants to do it.” I am not sure who said that, but it is dead on.

As to another market timing issue, how about that “presidential cycle” thing?

  • History shows that in year two of a President’s term, the S&P 500 has actually fallen by a median of -1.5 percent. However, it is during the second and third quarters of these years that things tend to get ugly as meaningful corrections have had a nasty habit of appearing.

Wow! That is some scary stuff. It fits right in with the scary stuff about the market’s real return over the next seven years. What is it about second years in a presidency that freaks out the market? Let me see, in President Obama’s first second-year, the breathless media was selling the news that Greece, Ireland, Spain, Portugal, and Italy were about to fail, which meant the  European Union was over, and the euro was about to collapse as a currency, which meant the euro-currency countries were doomed. Those catastrophic predictions brought about some “nasty corrections” in the second and third quarters.

I don’t know. The idea that the market has some irrational fear of a president’s second year seems a bit of a reach. Could it be the statistical reality of that “median -1.5%” in a presidential second year means nothing? After all, in President’s Obama’s third and fourth years, there have been market corrections as well, and not one of those had to do with his year in office; they all had to with events that shape the market all the time, no matter when a president is president.

And yet, there is still more. The following statistical extrapolation takes us in another direction with the presidential cycle theory.   

  • Since JFK’s Presidency, which began in 1961, the average return for the S&P 500 in the sixth year of a president’s term has been 18.3 percent (median 14.6 percent). And last time I checked, +18.3 percent beats the pants off of a decline of -1.5 percent.

Coincidentally, this is the sixth year of President Obama’s term, which presents us with quite the dilemma – do we take a long vacation because the market will turn down and stay down for a while or do we stay and play in a market that is heading skyward for the rest of the year?

I have a better idea. Toss the dilemma. Accept the notion that the market moves on other catalysts aside from presidential terms, things such as current events, earnings, and sayings about the time of year. Oops! Forget that last one. I meant to write “economic and market fundamentals.”

Take the market one day at a time, look forward a week based on data coming out that week, peer a month or two ahead via the VIX and futures, but after that, be present. Don’t listen to the talking heads in the breathless media who suggest that the market will act accordingly in certain presidential years, at certain times of the year (May), or the way the bones fall. Anyone can make the numbers say anything. Stick with the basics – the real news and the fundamentals.

Trade in the day; Invest in your life …

Trader Ed