You have likely heard the phrase ‘Sell in May and go away’ which is one of those ‘old sayings’ that comes around this time every year. We know it comes around because it often ends up at our place. Just like the sighting of the first robin is a sure sign of the arriving spring, getting a call or email from a client wondering about ‘Sell in May’ is a predictable event.

So, is that just an old saying or is it instead ‘words of wisdom’? Well, our take is that it probably was closer to wisdom in times past – those halcyon days of yore also known as ‘pre-internet’. That was a time when ‘going to work’ meant going to the office. For traders and institutional investors, that meant getting to your actual office or the trading floors on Wall Street in New York or LaSalle Street in Chicago.

Co-incidentally, but not accidentally, stock markets would frequently weaken during the summer. There was a recurring seasonal trend when large numbers of Wall Street traders went to their summer homes in the Hamptons and were not very active. Light trading volume tends to prevent price escalation in the markets so it was true that making gains in the summer was statistically harder than in the other three quarters of the year.

This is no longer the case. With the advent of online everything, traders can work from anywhere and often do.

There has been a history of markets being stronger in the winter than in summer for many years. One possible reason for this is that money flows out of markets to buy summer homes: more people buy homes in the summer than winter. House money often comes from financial assets, and outflow of assets from financial accounts often results in lower asset values.

So, should you sell in May this year? In general, I do not believe so. First of all, to my knowledge, there are no encapsulating phrases that should be elevated to a status above rational analysis. There may in fact be seasonal money flows in and out of markets but these things do not occur in a vacuum. Personally, I think this year will be, like last year, another year of positive returns over the summer months.

While we are on the subject, let’s give a word or two about another trendy belief. The so-called presidential cycle in the markets would typically suggest that this would be a weak year for markets, but many believe we have a different sort of president this cycle. Thus far we have certainly seen different markets than during the usual cycle.

Additionally, several longer-term market indicators are pointing to stronger markets, all at the same time. Again, this appears to be co-incidental but not accidental. Each of these indicators uses different data sets and methodologies making this similar market pointing to positive returns more valid. They indicate the end of a U.S. corporate profits recession, short-term moving averages stronger than long, healthy looking corporate returns in the Eurozone and emerging markets, the potential for reduced corporate tax brackets, and perhaps (finally) a return of ‘animal spirits’ to the markets. These would seem to indicate that this may be a stronger summer than usual for markets.

So, should you sell in May?  I believe you’ll be missing the party if you do.

Market Minute 5/5/2017 – Tax Changes?

Speaking of potentially reduced tax brackets, according to the White House website, our President would like to:

  • Take the seven tax brackets we have today and reduce them to three: 10%, 25%, and 35%. (Oddly, no mention of income thresholds)
  • Double the standard deduction for married people to $24,000.
  • Provide aid for child and dependent care expenses.
  • Repeal the AMT – the alternative minimum tax.
  • Repeal the Medicare surtax related to Obamacare.
  • Repeal the inheritance tax, the so-called “death tax.”
  • Retain deductions for mortgage interest, charitable giving, and retirement; all others would be repealed, including state and local taxes and property taxes.
  • Reduce the corporate tax rate from 35% to 15%.

Let me emphasize that these changes are a framework around which President Trump hopes to build a tax plan. The finished product, IF passed, may look much different. However – in the event that the Corporate tax levels drop to say 25% (from the proposed drop to 15%) we would anticipate that this year could be VERY strong for U.S. markets. We’ll see.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com
10000 N. 31st Avenue, Suite C-262

Phoenix, AZ 85051

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at info@denkinvest.com.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation. Information in this commentary is the sole opinion of Denk Strategic Wealth Partners. Past performance is no guarantee of future returns. All market related investments involve various types of risk, which include but are not restricted to, credit risk, interest rate risk, volatility, going concern risk, and market risk.

The Update provides information of a general nature regarding legislative or other developments. None of the information contained herein is intended as legal advice or opinions relative to specific matters, facts, situations or issues. Additional facts, information or future developments may affect the subjects addressed in this document. You should consult with an attorney, accountant or DSWP planner about your particular circumstances before acting on any of this information because it may not be applicable to your situation.

Lincoln Financial Securities and Denk Strategic Wealth Partners and their representatives do not offer tax advice. Please see your tax professional regarding your individual needs.

*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.

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