"Sell in May and go away" became a Wall Street axiom two decades ago, thanks to the Stock Trader's Almanac. The strategy may be more compelling than usual for US stock investors this year, according to its editor.
The Dow Jones Industrial Average may tumble as much as 30 percent between this month and October from the six-year high set last month, said Jeffrey Hirsch, president of the Hirsch Organization in Nyack, New York. His forecast reflects the six-month period's track record, the mid-term congressional election in November and Ben Bernanke's arrival as Federal Reserve chairman.
"We have a very lofty market entering a seasonably unfavorable time in the most vulnerable period in the election cycle," said Hirsch, 39, whose father Yale started the almanac.
"This is something that we've been pounding the table about and we're even more concerned about it now," he said.
Hirsch isn't the only analyst anticipating a retreat. Tim Hayes of Ned Davis Research Inc said stocks may slide at least 10 percent in the next six months. Bear Stearns & Co's Francois Trahan said the history of the "sell in May" strategy ought to make bulls cautious.
The market stalled last week as Microsoft Corp gave a disappointing profit forecast and China raised its main interest rate. JPMorgan Chase & Co led banking stocks higher as Bernanke signaled the Fed may suspend a policy that has resulted in rate increases at 15 straight meetings.
For the week, the Standard & Poor's 500 Index lost 0.1 percent to 1310.61 and the Nasdaq Composite Index fell 0.9 percent to 2322.57. The Dow Jones Industrial Average rose 0.2 percent to 11,367.14, boosted by JPMorgan.
The S&P 500 notched a 1.2 percent gain for last month, its best performance since January, and the Dow reached levels not seen since January 2000. First-quarter profits that topped analysts' estimates drove the rally, a fitting end to what traditionally has been the market's best six-month stretch.
About 70 percent of the S&P 500 companies that reported earnings beat Wall Street's projections, above the 57 percent average since 1992, data from Thomson Financial shows.
Verizon Communications Inc, the second-largest US telephone company, will post earnings tomorrow. Time Warner Inc, the world's biggest media company, and Procter & Gamble Co, the largest US maker of household goods, will follow a day later.
Financial-newsletter writers are increasingly calling for stocks to fall 10 percent, according to Investors Intelligence.
Advisers predicting a "correction" climbed in the week ended April 21 to 28.8 percent, the most since August 2004, a survey by the New Rochelle, New York-based newsletter showed.
Their opinions may reflect the calendar. An investor who placed US$10,000 in the Dow average at the end of April each year since 1950 and sold at the end of October would have a net loss of US$272, according to Hirsch's calculations. Someone doing the opposite would have gained US$534,323.
The Dow has risen 0.3 percent on average in the May-to-October period since 1950. For November through April, the Dow has climbed 7.9 percent -- a performance that reflects year-end bonuses, tax refunds and pension-fund contributions flowing into stocks.
Last year, the 30-stock average gained 2.4 percent in May to October. The Dow industrials then climbed 8.9 percent from November to last week.