On May 1st (Sunday) my weekly outlook article on Seeking Alpha considered whether this would be a good year to follow the old market dictum: sell in May and go away.
My recommendation then was to sell commodities and hold stocks and bonds. Let’s see how that might actually have worked out using the most widely held ETFs as proxies for these asset classes. June price returns were
Common Stocks (SPY); 1.12% loss
Multi Sector Bond (AGG); 1.24% gain
Commodities (DBC); 5.17% loss
All in all not a bad call; a balanced portfolio of stocks and bonds broke even on a capital basis and holders collected some dividends for their trouble. My preferred proxy for a drop dead simple portfolio, the Vanguard Balanced Index Fund (VBINX) was minus 0.18% in May.
As we get into June, poor economic data is beginning to accumulate, and bond yields are continuing to fall in surprising fashion. In my most recent SA article I forecast a 2 handle on 10 year Treasury yields; as of this writing we are already there. The ability of the S&P 500 and the Russell 2000 to remain above support levels, at 1340 and 840 respectively, is something I am watching closely.
I am not bearish on stocks at this moment. We could be seeing these indexes (and a number of leading stocks) building new bases at current levels…but an inability to break out to new highs, or a break down through 1300 on the SPX and 810 on the RUT – especially with volume – would turn my outlook to negative.
Commodities still look like a sell to me. For bonds, I expect to see the ten year get to 2.6 – 2.8%.