Sell in May, Go Away?
Markets & Rates
Dividends Are Good!
The old adage, “Sell in May, Go Away” used to be in the news each year. From 1950 to 2013, the Dow Jones Industrial Average increased a mere .3% on average from May through October. From November through April, the Dow Jones moved up an average of 7.5% year. If you would have followed that strategy from 2013 through 2018 you would have missed significant equity gains.
So what about 2019? The Dow is up 10.79% and based on 1st quarter equity earnings, the gain is justified. Our Federal Reserve is determined to keep interest rates low, which is typically constructive for both stocks and bonds.
Last week we witnessed weaker data for Retail Sales, Durable Goods Orders and Housing Starts. This indicates to me the 2nd quarter is off to a weaker start. Add in the now escalating trade issue with China, trade negotiations with Japan and perhaps Corporate America getting a little more cautious, my suggestion is not be overweight equities or bonds at this point. For retirees, having funds you’ll need for consumption over the next few years out of harm’s way may be a great idea. Especially when you consider you can obtain a decent guaranteed rate of interest by using either Short-Term Treasury Bills and/or Certificates of Deposit to match your shorter-term consumption needs.
Markets and Rates
Last week saw the Dow Jones down for the 5th week in a row falling (.63%). The S&P500 lost (1.14%) and the Russell 2000 fell (1.39%)
Bonds prices firmed as interest rates fell pushing the Barclay’s Aggregate Bond Index up .43% for the week. The 10 Year US Treasury yield closed last Friday @ 2.33%, down from 2.39% the week prior. Amazing to many, the Year to Date Return of the Barclay’s Aggregate Bond Index is 4.01%.
Did anyone really believe prior to January 1, 2019, the rate on the 10 Year US Treasury would fall from 2.69% on December 31, 2018 to the current 2.33%? Easy to be a “Monday Morning Quarterback”.
Dividends
Are we in the 7th inning of this economic expansion or are we in extra-innings? Most would agree we’re at least in the later part of the cycle. With that said, Dividends are good from both Equities and Fixed Income (Bonds).
I have clients who have held some well-known stocks for years, such as Intel. I can recall being asked about Intel when the news was bad and the stock would fall. My advice each time, because of the position in the portfolio for the client and the quality of the company was to simply keep reinvesting those dividends into additional shares, which has paid off handsomely to say the least.
Whether you are using stock and bond dividends for your current consumption, having them accumulate for nearer term consumption or reinvesting them for future benefits, the benefits can be significant, especially if it turns out we are in extra-innings!!
Question of the Week
In 2018, which country imported the most OIL?
- United States
- Japan
- India
- China
Answer to last week’s question
Social Security Tax: If your “Provisional Income is above $44,000 for those filing a joint return and above $34,000 filing single, up to 85% of your annual Social Security Retirement Benefit is subject to Federal Income Tax. What types of the following income are included in the Provisional Income Calculation?
A. Earned Income
B. Unearned Income
C. Taxable Interest Income
D. Tax-Free Interest Income
E. ½ of your annual Social Security Benefit
F. All of the above.
The current answer is letter f) all of the above.
For information on our upcoming June 2019 Educational Retirement Income/Tax Workshop, please click HERE.
