The first quarter of 2024 witnessed a robust performance, but April brought a setback as major indices experienced a decline across the board. Factors such as persistent inflation, rising bond yields, and geopolitical tensions weighed heavily on investor sentiment, shaking confidence in the market. Given this backdrop, we wanted to explore the potential path ahead.

In our most recent post, we examined the historical patterns of stock market performance in election years that began with gains of at least 5%. The post highlighted that seasonal weakness often occurs during the spring months. While the adage ‘sell in May and go away’ is a well-known strategy among investors, it has not held significant weight over the past four decades.

(Source: Fundstrat)

In fact, historical data suggests a more optimistic outlook. Since 1984, May has been positive 77% of the time, indicating a tendency for markets to rebound after the seasonal weakness observed in April. Furthermore, when the first quarter has been positive but April negative, May has shown positive returns 83% of the time during bull markets and an impressive 100% of the time in June.

This recent 5.5% correction could be chalked up to a minor setback after five consecutive months of gains. While no statistical analysis is perfect, the historical trends point to a rebounding stock market in the summer months.

Bull Market Intact?

Throughout history, the financial markets have experienced 13 distinct bull market cycles since 1950. Interestingly, 6 out of those 13 bull markets, including the current one, began in the month of October. While the duration of these bull markets has varied, the average length stands at a little over 5 years.

The most recent bear market ended in October 2022, nearly 19 months ago. If the current upward trajectory were to end, it would mark the shortest bull market on record.

(Source: Carson Investment Research)

While bull markets can end abruptly, the current uptrend’s duration and returns would make it a statistical outlier compared to past cycles.

Google Trends to Measure Market Sentiment

Google’s “Google Trends” feature allows you to enter a term and observe its relative search popularity across different time periods. This data can provide valuable insights into the interests and concerns of the investing community. In the chart below, we explored the search term “treasury bonds,” which are often considered a safe-haven investment during market volatility. We analyzed the search trends for this term from January 2022 to the present day.

The chart reveals several distinct search volume spikes for the term “treasury bonds,” which could indicate periods of heightened investor caution. To gain further insights, we analyzed these spikes and examined the subsequent monthly performance of the markets following these potential flight-to-safety events.

Notably, the most significant spike in the search volume for “treasury bonds” occurred in September 2022, just a couple of weeks before the market hit its annual lows on October 12th. In contrast, the year 2024 has not witnessed a comparable surge in searches for this term, although it’s worth mentioning that the peak in 2024 occurred in mid-April, coinciding with a 5.5% market decline. While attempting to time the market is generally considered a futile endeavor, understanding the sentiment of other investors can provide valuable insights into potential market movements.

Articles We’re Reading

Consumers pushing back against high food costs, forcing companies to ramp up value proposition (MSN)

Buffett says designated successor Greg Abel will have final word on Berkshire’s investing decisions when he is gone (CNBC)

Yuan weakness providing big tailwind for China exports (MSN)

White House won’t sign defense agreement with Saudi Arabia if kingdom and Israel don’t agree to normalize relations (FT)

Market Snapshot

For the Month Ending 4/30/2024 (Cumulative Returns)1   

1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the  valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal  funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor  Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar  Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.

Did You Know?

The well-known saying “sell in May and go away” has its origins rooted in the financial markets of London during the early 20th century. It refers to the historical pattern observed in stock markets, particularly in the UK and US, where returns tend to be lower during the summer months from May to October, compared to the winter months from November to April.

This saying originated when traders and investors in London would leave the city during the hot summer months, leading to decreased trading volumes and potentially higher volatility.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.