The second-longest bull market for U.S. stocks continues to struggle. Since last summer, the market has twice dropped over 10%. Although the market rallied back on both occasions, it still finds itself below its May 2015 high. Even that high was reached by slight-of-hand as PE ratios merely expanded to lofty levels and were not supported by real earnings growth. Thus, investors aggressively paid more dollars for less earnings hoping the market would continue to go up and they could sell later at a higher price. It didn’t.
Now, with more than 40% of the companies in the S&P 500 having reported Q1 earnings, profits are down 5.5% from last year. When all reports are in, profits could be down as much as 8% making this the fourth quarter in a row of declining earnings.
While the apple doesn’t fall too far from the tree, it was down 11% on Friday and off nearly 30% from its high reached last May as the U.S. market hit its historic highs. Apple reported disappointing earnings, in large part due to a decline in sales to a slowing Chinese economy. This is the first quarterly decrease in sales for Apple in thirteen years!
With U.S. stock markets and PE near historic highs, while global growth, revenues, and profits are falling, it just doesn’t feel like a great time to be all in hoping for higher stock prices, especially in May. Using stock market index data from 1950 to 2009, a 2012 study revealed that investments from each November to April turned $10,000 into $525,000. Compare this to the findings that investments made each May to October turned $10,000 into $500. While the stock market may be different this time, the next six months will likely witness the most contentious presidential election in history, a U.S. economy struggling along with increasing global risks, and central banks running out of stimulus tricks.