Update from Wall Street: Do NOT Sell in May (May 13-May 17)
Happy weekend everyone and welcome back to the Rippy Global weekly outlook. The markets continue to rise this week, up 1.85% gaining back almost all of the losses we saw in the past few weeks. Stocks are gaining on better than expected earnings, buybacks galore, and new economic data providing ample opportunity for the markets.
Let’s take a look at what next week has in store for us!
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“Sell in May and Go Away” is a common phrase on Wall Street, usually referring to the weak seasonality of the month, but with the market so strong, what is the cause for this odds defying rally and will it continue? Last week we learned that nonfarm payrolls increased by 175K vs. the 243K that the market expected, as well as the unployment rate coming in higher than expected. This is traditionally good news for inflation when the unemployment rate increases because it gives the market confidence that we’re not entering a period of stagflation. The market views this as a signal that the Fed can ease up on interest rates since their plan to weaken the job market, and in turn, inflation, is working. Last week, we also learned that jobless claims were up, another good sign from the labor-market’s view on inflation. Bank of America says this May rally will continue higher stating “[d]o not sell in May and go away.” The reasoning for this is that since 1928, these summer months have been the strongest for the market and should provide the tailwinds for another push. Market breadth is also stronger than it was before, with more stocks hitting new 52Wk highs.
Jim Simons was the man who pioneered quant trading and known as the “man who solved the markets”. He’s largely known as one of, if not, the greatest traders who ever lived. Over a 30 year period he averaged a 67% annual return in a hedge fund setting- aka $100 would have turned to over $400M if it wasn’t for his liquidity caps and management fees. Much of his trading wasn’t like Buffet’s fundamental style approach, but he was rather one of the first to use statistical models to trade ideas, where the trades wouldn’t be held for longer than a few minutes. He had also started his charitable foundation and been huge for the Stony Brook University math department. In his own words, he “did a lot of math, made a lot of money, and gave it all away”. He originally started as a mathematician in the National Security Agency and his work in math helped him work on algorithms to solve financial markets. With his passing announced by his charitable foundation, this is a good time to remember one of these financial legends and the lessons he had brought with him.
This week there was a major solar storm experienced by much of the United States (you may have seen it on your local news channels, with much of the USA and Canada able to see the northern lights), but this should lead to an interesting trade. This is one of the most powerful storms, and Starlink launched by SpaceX was holding up. Starlink also surprised analysts with higher than expected analyst revenue projections. There’s a closed end fund trading under $DXYZ where 34% of it is privately owned SpaceX shares. This could run on this good news although there’s been a lot of recent dilution since this was trading at such a premium to NAV.
OpenAI also had some interesting news recently. First, Apple is nearing in on a deal to include their AI on iPhone. Another more “trade-able” news is that they’re launching a search engine service to rival Google. Google stock has been in a phase of uncertainty because of this with a Microsoft Bing + OpenAI finally becoming a worth competitor to Google’s engine. Gemini has been a bit of a disappointment to the markets, so it will be interesting to see if OpenAI is able to deliver a quality product, otherwise I don’t think Google will be losing market share anytime soon.
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#1) Earnings week is slowing down from what has been a great season with China having some big reports this week.
#2) On Monday, OpenAI may announce their search engine to rival Google.
#3) On Tuesday, Jerome Powell will speak and the PPI index will be released.
#4) On Wednesday, quarterly hedge fund reports will be released and we can tail what some investing legends have been doing.
#5) On Thursday, there are a bunch of Fed Speakers that should lead to more volatility throughout the day.
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S&P 500
The S&P 500 ($SPX index) is reaching this pivotal new all time high levels here. Since this is such a strong spot, I expect this to chop around, but as long as $515 is held we are in a long term uptrend that can continue higher.
My key breaks are $525 for bulls and $518.22 for bears.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
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INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
TSLA
Tesla has basically sold off most of the post-earnings rally, and most of the news on this name is still negative, with hiring slowing down and self-driving not proving to be a service that is driving recurring growth. The US is also going after them for securities fraud about the claims of their self driving.
AAPL
Apple had earnings, which were pretty disappointing for company growth, but hey also announced a $110B buyback which is the largest corporate buyback EVER. This move was interesting and confused much of the market, but is overall good for the name. The big next catalyst will be if they introduce real AI features at their WWDC event this June.
HSY
Hersheys is one name I’ve been interested in, but was breaking out this week over $203 from this huge base it’s been creating. If this holds, it’s one of the few good bullish setups I see in the market right now after what has been a brutal sell off for the name.
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Insider Activity
HRTG, which is an interesting insurance company, and MBUU which is a boat company (pre-Summer) both saw big buys this week and I think are good plays.
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Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (www.twitter.com/realaditdayal)