Q2 Outlook: Get Ready for the Spring Selloff

by Dan Burrows | March 28, 2013 8:53 am

QuarterlyReviewOutlook185 Q2 Outlook: Get Ready for the Spring Selloff[1]If this year is anything like the last three years, get ready for the market to stumble — or even hit a full-blown correction — at some point in the second quarter.

Of course, it’s not a foregone conclusion. The U.S. economy certainly looks to be in better shape this time around. The job market is getting better, as hiring is picking up and the unemployment rate is slowly trending down.

That’s partly due to an accelerating housing market, including large increases in housing permits, new construction, better sales of existing homes and rising prices.

But Cyprus is throwing the eurozone into crisis once more, there are still recessionary conditions across much of Europe and China continues to suffer an ongoing slowdown. With these all weighing on global growth and investors’ psyches … well … it could be déjà vu all over again when it comes to a spring and summer market swoon.

Forget about “Sell in May and Go Away.” Since 2010, it’s been best to get out of the stock market at the beginning of the second quarter.

Have a look at this three-year chart of the S&P 500, courtesy of S&P Capital IQ, and you’ll see that things always seem to fall apart right about now:

SP 500 CHART Q2 Outlook: Get Ready for the Spring Selloff[2]

As Jurrien Timmer, co-manager of the Fidelity Global Strategies Fund (MUTF:FDYSX[3]) notes in some recent commentary[4]:

Now, everyone is saying that the four most dangerous words in investing are “This time it’s different.” Still, there are a bunch of fundamental differences this year — as we mentioned briefly — that support more upside for stocks in the second quarter.

Among a long list of good news for the bulls, Liz Ann Sonders, chief investment strategist at Charles Schwab (NYSE:SCHW[5]), notes the following market tailwinds:

Fortunately, whatever the market does in the second-quarter, it’s pretty easy to prepare for it.

If you’re a tactical investor who doesn’t mind racking up trading fees and capital gains taxes, just tighten up those stop-loss orders — and don’t be afraid of getting stopped out.

If you’re a long-term investor? Relax. If you’re dollar-cost averaging into equities — like through a 401(k) plan — well, a market swoon just means you’ll be buying good stocks at ever-cheaper prices.

Don’t forget: We had serious corrections in each of the last three years — and they were all followed by powerful rallies into year-end and beyond.

As of this writing, Dan Burrows didn’t hold positions in any of the aforementioned securities.

Endnotes:
  1. [Image]: http://investorplace.com/hot-topics/quarterly-review-outlook/
  2. [Image]: http://investorplace.com/wp-content/uploads/2013/03/SP-500-CHART.jpg
  3. FDYSX: http://studio-5.financialcontent.com/investplace/quote?Symbol=FDYSX
  4. commentary: https://www.fidelity.com/viewpoints/market-and-economic-insights/timmer-march13-commentary?ccsource=email_weekly
  5. SCHW: http://studio-5.financialcontent.com/investplace/quote?Symbol=SCHW

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