Market Overview

Should you Sell in May and Go Away?


Second day into “sell in May, and go away”—have you decided which stock to let go? Before you do, let us take a look at what’s happening in two of the hottest industries right now: gold and health care.

April ended on a positive note for traders. Dow Jones Industrial Average (Dow Jones) closed at an all-time high of 16,580.84, up 45 points than its record close in December. The Standard & Poor 500 (S&P 500) also soared by 0.5 percent to 1,878.33. Nasdaq also soared by 0.7 percent to 4,103.54, according to Zack’s investment research.

On the New York Stock Exchange, 58 percent of stocks rose while 39 percent dipped, CNBC reported

Sadly, come May 1, trends have started to reverse, albeit slightly, with Dow Jones down by 0.13 percent, based on latest market data. S&P 500 was also down by 0.01 percent to 1,883.68. Nasdaq, on the other hand, was up by 0.31 percent.  

Stocks on the S&P 500 Health Care Index earned 55 percent higher than it did two years ago, Wall Street Journal said. The sector was on an upswing due to the $21.5 billion investors placed in healthcare mutual funds and ETFs since 2013, added Wall Street Journal.   

Despite upbeat data and pharmaceutical mergers in full swing, however, investors are looking elsewhere, afraid that health care is headed for a downdraft just like its biotech sibling. As a Bloomberg report notes, investors have started to cash in and put their portfolios on “sectors geared toward economic growth.” 

In gold investing, investors have started to turn to gold again as the Ukraine crisis intensifies. Although the market still appears bearish for most analysts and firms (i.e. Goldman Sachs), analysts like George Milling-Stanley have forecastedearly in April that people would be holding on to the yellow metal for financial protection.

This would be a big shot in the arm for big-cap Barrick Gold Corp (ABX) which saw profits sharply fall by 90 percentthis month and small caps like Premium Exploration, Inc. (OTCQX: PMMEF; TSX.V: PEM), whose valuation is seen by business columnists to rise this year.  

Mixed Opinions

For some analysts, “sell in May” happened months ago, in March, and it’s likely that selling may be limited now. Quoting Bespoke, CNBC noted that “sell in May” only works “about two-thirds of the time.”

Steve Massocca, portfolio manager of the Wedbush Hedged Dividend Fund told CNBC a valuation correction will occur only amongst “kooky names”—stocks with “40 times revenue” names. 

"There's a lot of hedge funds that have to liquidate. They own a lot of these names, and they'll continue to be for sale," he said.

Richard Gobel of TheStreet thinks both DJIA and the S&P 500 were overbought.  “The down day today did nothing to alleviate that overbought condition. I am still looking for that selloff to take place at anytime now,” he noted in his article. He also added that both “simply cannot continue” in their overbought state. 

On the other hand, Massoca notes that shareholders may be keen on holding onto some stocks.

"Large swaths of the market are not overvalued and are not caught up in this. The market will be discerning about it. I'm looking for a mixed picture. This is going to be a stock picker's market," Massoca told CNBC. 

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.


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