During the summer months the volume of investments is usually very low, which is where the term “Sell in May and go Away” came from. It does not take a lot of trading to create a move up or down and most trends are short term.
I had expected the current stock market down turn to have occurred at the beginning of June when Chrysler and General Motors were in Chapter 11. I was actually disappointed that it did not happen then. Well, people seem to have been on vacation and too busy to do it then, so they are doing it now.
I don’t mean to sound cold, withdrawn or unfeeling. This is just the way most summers go. If the stock markets would have reacted to the Chrysler and General Motors filings and gone down, I was ready to invest the other half of our clients’ money. There are no guarantees, but since the markets have done what they have, I actually expect them to drift or trade within a range for the rest of the summer. Then I expect them to give us some real direction. The chart below shows what the markets have done so far this year and how our current investments have fared. It shows that March 9th was probably the low point of the year for the stock markets, and, unless we retest those lows, I am not too worried. It also shows the level of the stock markets when we started investing again, when they hit their 2009 high on June 15th and where we are today. It shows we are better off than we might have thought, but not as well as we probably wanted to be. It shows we may be starting into that summer range-bound trading area. Once the kids are back in school and vacations are over, traders will get more serious and will give us some direction.
Finally, it still looks like this decade will go down as the worst in history. The first decade of the 21st Century will not be over until the end of 2009; however, through December 31, 2008, the S&P 500 has lost a total of 32.9%, for an average annual rate of return of -4.4%. For every $100,000 invested January 1, 2000, investors would have $67,251 on December 31, 2008. The S&P 500 will need to have a return in excess of 41.7% in 2009, and that does not appear likely, in order to avoid it becoming the worst investment decade on record. Be thankful that our stops worked last year and got us out of our investments. The normal asset allocation’s buy and hold did not work during this decade.