A triple-digit gain followed by a triple-digit loss, and the Dow Jones still is spinning its wheels. The blue-chip index hasn’t put together a two-day winning streak in May, and all three major indices are set to log their biggest monthly declines since September.
Looks like “Sell in May and go away” would have been a good adage to follow this year — too bad it’s probably too late. As hard as it is to accept when stocks are down and volatility is up, the best course of action for long-term investors is to sit on your hands.
Call it a Seinfeld market of sorts: It’s not about nothing, but there’s nothing new fueling its latest gyrations:
- China is slowing and is planning a stimulus? Old news.
- The sovereign debt crisis continues to lurch along with the threat of capital flight from Italy, Spain and Ireland? The market has been living with that for couple of years now.
- U.S. economic data mixed? Check.
- A fiscal cliff is looming? Yeah, everyone knows.
There has been no new news in the past couple of days to justify a 300-point round-trip on the Dow. And the majority of daily trading is generated by high-frequency shops’ computer algorithms, anyway. The low trading volume and big swings suggest that the market’s heat and light is mostly just the frenetic front-running of the machines.
As billionaire hedge fund manager David Tepper says: “Sometimes the hardest thing to do is to do nothing.” He’s worth more than $5 billion, so he’s probably worth heeding — at least for another couple of weeks. After all, the market isn’t likely to do anything definitive until Greeks head to the ballot box.
“Markets are focused on the June 17 Greek election with poll results holding market-moving significance given what is at stake,” says Jeffrey Kleintop, chief market strategist at LPL Financial, in his latest note to clients.
True, a vote in favor of the pro-bailout parties might provide a relief rally, Kleintop says, but deposits already are fleeing banks of southern European countries for the safety of Germany, setting the stage for a potential crisis if the vote goes as the last one did — a resounding rebuke to austerity.
“In the meantime, for the markets, Greece’s polls are like greased poles — hard to grab onto and harder to climb on,” Kleintop says.
As painful as the market’s 7% drop from its 2012 high as been, it’s still up a healthy 5% for the year. Furthermore, for all the sturm and drang, stocks have only moved sideways over the past year. Since May 2011, the S&P 500 has been down more than 18% and up as much as 5.5% — only to be sitting almost exactly where it started.
Sure, if you timed the market right during the past 52 weeks, you outperformed, but unless you were exceedingly lucky (and don’t pat yourself on the back for being lucky), you only amplified your losses and racked up fees.
The results from the Greek election won’t put an end to the crisis in the eurozone — that will take years to shake out — but it will offer some insight into what happens next. The market looks to remain anxious yet range-bound at least until the results are in, and possibly much longer.
Corrections happen. Stocks go up and down. And no one has a crystal ball. The safest course of action in the face of such uncertainty it to sit tight and stay frosty.