Is “Sell in May” a Myth This Year?

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Welcome to The Market Pulse, your weekly dose of market insights from Global Investment Daily.

Today, we’re challenging a Wall Street adage that might make you want to pack your bags and head for the beach: “Sell in May and go away.” But before you start planning your summer getaway, we’re here to tell you why it might be worth sticking around.

In this issue, we’ll explore the surprising strength of small-cap stocks in the face of a strengthening U.S. dollar. We’ll uncover the factors driving the dollar’s ascent and why this could translate to gains for your portfolio.

But that’s not all. In our “This Week I Learned” segment, we’ll share valuable insights to help you become a smarter investor. And for fun, we’ve sprinkled in some intriguing market trivia that might just make you the star of your next cocktail party.

Grab your coffee (or your favorite summer drink) and get ready for a pulse-pounding journey through the markets. This week’s Market Pulse is packed with information that could change the way you view summer investing. Let’s dive in!

This Week I Learned…The U.S. Dollar’s Double-Edged Sword

This week’s lesson is about the U.S. dollar and its surprising impact on your investments. While a strong dollar might seem like a sign of economic health, it can damper large multinational companies’ earnings. Why? Because these companies often earn a significant portion of their revenue overseas, and when the dollar strengthens, those foreign earnings are worth less when converted back into greenbacks.

So, what’s the silver lining for investors like you? This is where small- and mid-cap stocks come into play. These companies tend to be more domestically focused, meaning they earn most of their revenue in the U.S. As a result, a strong dollar doesn’t hurt them as much. In fact, it can even give them a boost as they become more attractive to investors who are looking to avoid the currency headwinds facing multinationals.

A strong U.S. dollar isn’t always a good thing for all stocks. Keep an eye on currency movements and consider adjusting your portfolio to include more domestic-focused companies when the dollar is flexing its muscles. This strategy could help you weather the storm and potentially even profit from the currency’s strength.

The Fun Corner: When Life Gives You Lemons, Make…Small-Cap Lemonade?

Did you know that the “Sell in May and Go Away” adage doesn’t always hold true? In fact, there have been plenty of summers where the market has thrived.

Case in point: The summer of 2020. Amidst a global pandemic, the S&P 500 soared by over 20% from May to October.

This summer, instead of sipping lemonade on a beach, you might want to consider adding some small-cap stocks to your portfolio. With a strong U.S. dollar and promising earnings season, these companies could be the surprise hit of the summer.

Moral of the story: Don’t always follow the crowd. Sometimes, the best opportunities are found where you least expect them.

Small Caps: The Summer Underdogs?

The old Wall Street adage “sell in May and go away” might have some historical merit, but this year could be different. While the May-to-October period has traditionally been lackluster for the broader market, small-cap stocks might just be the summer’s unsung heroes.

Recent data reveals a strong six-month performance for the Russell 2000, with an 18.7% rise from November 2023 to April 2024. Although April saw a dip, the question now is whether small caps can bounce back and continue their upward trajectory.

The answer may lie in an unlikely place: the surging U.S. dollar. While a strong dollar typically hurts multinational corporations with significant overseas revenue, it can actually benefit smaller, domestically focused companies.

The dollar’s recent strength is attributed to soaring Treasury yields and delayed Fed rate cuts, factors that have tempered hopes for an early easing of monetary policy. This creates a unique opportunity for small- and mid-cap stocks, as institutional investors seek refuge from the currency headwinds impacting larger companies.

In essence, a strong dollar could be a tailwind for small caps, potentially driving their performance throughout the summer. The impressive first-quarter earnings season further supports this optimistic outlook, suggesting continued growth for these often-overlooked segments of the market.

So, while the “sell in May” mantra might be tempting, consider the potential of small-cap stocks to buck the trend this summer.

Don’t Discount the Underdog

As we wrap up this week’s Market Pulse, remember that the financial world is full of surprises. While the “sell in May and go away” adage might hold some historical weight, it’s not a one-size-fits-all strategy. This year, the strong U.S. dollar and promising earnings season could create a unique opportunity for small-cap stocks to shine.

Before you let the summer doldrums set in, consider the potential for these underdogs to outperform. A well-rounded portfolio is key, and diversifying your investments across different sectors and company sizes could be the key to unlocking greater returns.

So, while you’re soaking up the sun this summer, don’t let your investment strategy take a vacation. Monitor currency movements and remember that even the smallest players can make a big impact on the market.

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