This week has been a tough one for the market… one of the toughest since January. I mentioned in Tuesday’s blog post that the reason behind the selling was the U.S.-China trade war taking center stage again. Investors were nervous about a Friday tariff hike deadline that would be imposed if a deal between the two countries could not be reached.
That anxiety flared up again today as the Friday deadline still stands and is set to go into effect at midnight tonight. Ultimately, though, I remain confident that a trade deal will happen. And when it’s all said and done, I expect it to be a win-win for both sides.
It also doesn’t help that it’s May, which is when the old adage, “sell in May and go away,” tends to crop up. The recent action tells me that some folks are indeed selling in May and going away. (Personally, I’m not a fan of this catchy Wall Street rhyme.)
However, I don’t recommend that you join them. In fact, I expect this May to be a great month for stocks.
You see, May is when stock buyback activity really kicks into high gear. Last May was a huge buyback month, with a record $171.3 billion in announcements. In fact, it was also the best May since 2009. This May should also see a lot of buybacks and potentially set new records.
As of April 30, 309 U.S. companies have announced authorizations to buy back more than $360 billion, according to data compiled by Michael Schoonover, COO of asset manager Catalyst Funds.
Generally speaking, it’s not uncommon for the buybacks to start coming in May. Companies like to wait until after their earnings are out before buying back stock.
Interest rates also will fuel aggressive buyback activity. The 10-year U.S. Treasury has been holding steady in the 2.40-2.50 range. In this ultra-low interest rate environment, the S&P 500 dividend yield, as of April 30, sits at a healthy 1.86%. So, we’ll continue to see capital flight around the world come straight to U.S. stocks.
This is why I view every selloff as an opportunity to buy good stocks on dips. It is nothing more than a distraction. Good stocks do bounce, folks, and I expect to see that in this market, too.
So, don’t sell in May and go away … stay engaged and reap the benefits when others flee the market. Of course, it’s important to buy the right stocks – the ones with solid earnings growth and momentum. That’s where I focus my research, and that’s what fuels my recommendations – on the select group of stocks poised to gain during the volatile market.
And I am putting my money where my mouth is. I recently recommended a AA-rated dividend growth stock in my Growth Investor service, which should do well no matter which way the market turns next. You can learn more about it here.