S&P 500's Best and Worst Months of May Since 1928

With the month of May beginning tomorrow, we wanted to highlight the best and worst S&P 500 performances during the month since 1928.  Overall, the S&P 500 has averaged a decline of 0.15% during the month, which is among the weaker average monthly performances of the year.  

While investors debate the merits of sell in may and go away, we thought it was worth pointing out that May has increasingly become a volatile month in recent years.  As shown in the table below, two of the ten worst months of May going all the way back to 1928 have both occurred during the current bull market (2010 & 2012).  Furthermore, one of the ten best Mays of all time also came during the current bull market (2009).  In other words, three of the four Mays during the current bull market have qualified as one of the ten best or worst Mays of all time.  That leaves 2011 as the only year where May was not one of the ten best or worst Mays ever.  In that year, the S&P 500 declined 1.4%.  With the month of May averaging a decline of 2.64% during the current bull market, you can't blame bulls for wanting to take the month off in 2013.

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Apple (AAPL): Fifth Time the Charm?

Shares of Apple (AAPL) had a nice rally of more than 3% today, but the stock closed just shy of its 50-day moving average (DMA).  The 50-DMA has been a hard nut to crack since AAPL first closed below it in early October.  In fact, over the 138 trading days since then, AAPL has only closed above its 50-DMA on three trading days, and there have been four prior rallies in the stock that failed just shy of or slightly below the 50-DMA.  Will the fifth time be the charm?

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Spanish Sovereign Spreads Drop Below 300 Basis Points

While the ratings agencies continue to lower their ratings and outlooks of European sovereign debt issuers, investors can't seem to get enough of the paper.  Take the case of Spain.  Last summer, traders couldn't dump the paper fast enough as spreads on 10-year Spanish sovereign debt widened out to more than 600 basis points (bps) above 10-year German Bunds.  Now less than a year later, spreads on that same Spanish debt have narrowed by more than 50% to 294 bps.  This represents the lowest level since December 2011.  

Ironically, the last time spreads on Spanish debt were this low was in late 2011 in the aftermath of the MF Global meltdown following its poorly timed bullish bets on European debt.  The only difference between then and now is that back then spreads were widening out from much lower levels, while today they have come down significantly from even higher levels.

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Gold Rallies Up Near Important Levels

The price of gold has made a nice comeback from its bloodbath in mid-April.  Below is an intraday chart of gold over the last 15 trading days.  Following its 9%+ decline on 4/15, gold has rallied by more than 7%.  Both Friday and today, the commodity has briefly traded above the opening price of 1,478.20 on 4/15 before pulling back.  Going forward, if gold can break that level, the next level of interest is the closing price of $1,501 from 4/12.  If you are looking to get long gold, it would probably be best to wait until the commodity can get back above at least one of these levels before making a commitment.

The Bulls Head for the Hills

A very nice bounce back for the market last week sure didn't do much for investor sentiment.  In fact, sentiment got significantly worse, with the percentage of bulls in our weekly market poll falling to just 38% versus 45% in the prior week.  As shown below, the percentage of bears in our weekly market poll jumped to its highest level in a year.  One thing's for sure -- the over-confidence and complacency that we typically see when the market is nearing a top is the complete opposite of what we're seeing right now.

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S&P 500 Higher or Lower From Here?

After struggling last week, the S&P 500 bounced back nicely this week for a gain of 1.7%.  As we head into May, US markets remain right near all-time highs.  But what should we expect going forward?  Please take part in our weekly market poll below by answering whether you think the S&P 500 will be higher or lower one month from now.  We'll report back with the results on Monday before the open.  Thanks for participating and have a great weekend!  If you're looking for some weekend reading, be sure to check out our member site -- Bespoke Premium -- for even better content than you see here!  You won't be disappointed.

Will the S&P 500 be higher or lower than its current level one month from now?
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Earnings and Revenue Beat Rates by Quarter

The number of companies that have reported earnings this season has doubled from the low 400s up to 855 since we last reported on the beat rate on Wednesday.  Below is an update of the percentage of companies that have beaten earnings and revenue estimates.  As shown, the earnings beat rate is now at 59%, which is up from the 56.9% reading we saw on Wednesday.  This is still low for the current bull market, but it's better than it was!

Top-line numbers have gotten a little better over the last two days as well.  On Wednesday, the percentage of companies that had beaten revenue estimates this season stood at just 44.1%.  As we close out the week, the revenue beat rate currently stands at 49%, which is an increase of 5 percentage points.

Earnings Beat Rate by Sector

Of the 855 companies that have reported earnings so far this season, just 59% have beaten EPS estimates, which would be the weakest quarterly reading seen during the current bull market if the season ended today.  Below is a breakdown of the earnings beat rate by sector.

As shown, four sectors have beat rates that are better than the overall reading of 59%, while six sectors have beat rates that are weaker.  The two consumer sectors have the best beat rates, with Consumer Staples leading the way at 69.6%.  Consumer Discretionary ranks second at 65.2%, followed by Technology (63.5%) and Energy (62.7%).  Telecom and Utilities have the weakest beat rates, but of the cyclical sectors, Materials and Financials are the weakest.  The Materials beat rate stands at 53.7%, while the Financial sector's beat rate is at 54.5%.

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Best and Worst Performing S&P 500 Stocks on Earnings

So far this earnings season, 855 companies have reported, and 248 of them are S&P 500 names.  Of the non-S&P 500 companies that have reported, just 55% have beaten earnings estimates.  Of the 248 S&P 500 companies that have reported, 69% of companies have beaten earnings estimates.  This is a pretty wide margin, and it made us think of this recent NFIB survey that showed that taxes and government red tape are the biggest problems facing small businesses today.  Large caps are obviously more equipped to handle government requirements and red tape.  Is this large cap outperformance the new norm in the current economic environment?

For those interested, below are lists of the best and worst performing S&P 500 stocks on their report days so far this season.  As shown, Netflix (NFLX) ranks at the top with a one-day gain of 24.44%.  Akamai Tech (AKAM) ranks second at +17.71%, followed by CLF, CMG and ALXN.  Other notables on the list of big earnings winners this season include Coach (COH), Coca-Cola (KO), Biogen (BIIB) and Google (GOOG).

On the downside, Edwards Lifesciences (EW) has been the worst performer in response to earnings with a one-day decline of 21.99%.  Safeway (SWY) ranks second worst at -13.94%, followed by TXT, PKI and RHI.  Other notables on the list of losers include Expedia (EXPE), IBM, Amazon.com (AMZN), Amgen (AMGN), eBay (EBAY), Procter & Gamble (PG) and Bank of America (BAC).  There are quite a few big names on the losers list!

Sell in May and Go Away?

The first third of the year is coming to an end, and as we enter May, trading will begin to slow as the sun comes out and temperatures rise.  In the investment world, the start of May is often associated with that awful phrase — “Sell in May and Go Away” — and each year we get a lot of requests to analyze whether or not the phrase is worth following.

Presented below is a table showing the performance of the S&P 500 from November through April and then May through October over the last 20 years.  We also highlight the average performance of the index over these two times periods going back 10, 20, 50 and 84 years (since the index began in 1928).  As shown...

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High Yield Spreads Drop to a New Low

Whenever you're looking for signs of strength or weakness in a market rally or for confirmation of a downtrend, there are a variety of indicators investors like to analyze.  Breadth measures or the percentage of stocks making new highs are two good places to look.  Another indicator we like to watch is spreads on high yield bonds relative to the yield of comparable Treasuries.  Although they are considered to be safer on the risk curve than equities, high yield bonds are one area of the fixed income universe that trades similarly to the stock market.  When looking at a rally in the equity market, you typically want to see spreads on high yield bonds moving in the opposite direction as equities.  For example, if equities are rallying, you want to see spreads on high yield bonds narrowing.  This indicates that investors are willing to take on more risk, as they are demanding lower yields to compensate them for the credit risk.  Likewise, when equities are declining, high yield spreads often widen out as investors demand more yield for what is perceived to be higher risk in the market.

In the chart below we have compared the S&P 500 (blue line) to spreads on high yield debt (red line).  For the sake of an easier comparison, we have plotted high yield spreads on an inverted scale to better view how they track equity prices.  Since the third quarter of last year, the two have tracked each other very closely.  Interestingly, after the February sell-off in equities around the time of the Italian election, spreads widened (shown as a decline in the chart) while the S&P 500 sold off.  In the equity rally that followed, however, spreads in high yield debt never confirmed the rally by making a new high.  This has had some bulls on edge over the last several weeks as a possible divergence between high yield and the S&P 500 emerges.  In the last couple of days, however, high yield bonds have rallied once again, causing spreads to narrow, and as of yesterday's close they fell to 466 basis points (bps) over Treasuries.  That is not only a new low for the last six months, but it is also the lowest spread in two years.

While a new low in high yield spreads is not a guarantee of continued gains in equities, it is something that should help bulls sleep a little better at night...At least until tomorrow's first quarter GDP report.

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Amazon.com (AMZN) Earnings After the Close

Over at Bespoke Premium, we offer a number of earnings-related products for both traders and investors looking to navigate the rough waters of earnings season.  One of the most popular products is our Interactive Earnings Report Database, which is available to Bespoke Premium Plus members.  With Amazon.com (AMZN) reporting earnings after the close, we pulled up the stock in our database to use it as an example of the type of information that's available to Bespoke members.  Please click on the image below for a larger view of the AMZN snapshot.

Our Interactive Earnings Report Database allows you to pull up the quarterly earnings information shown below for nearly 3,000 US companies.  As shown in the AMZN example, the database highlights the actual and estimated quarterly earnings and revenue numbers over the last ten years, and it also includes any upside or downside guidance that was issued.  Along with the earnings and revenue information, the database also shows how the stock traded in reaction to each quarterly report, so you can really get a feel for how different stocks typically respond to various report scenarios.

For AMZN, the stock has beaten earnings estimates 59% of the time over the last ten years, and it has beaten revenue estimates 71.8% of the time.  While AMZN has guided higher on 17.9% of its reports, it has actually lowered guidance on three of its last five reports.

In terms of price reaction, AMZN goes up more than it goes down on its report days.  (For companies that report after the close -- like AMZN -- we use the next day's change when analyzing price reaction.)  As shown, AMZN has averaged a one-day gain of 1.03% on its report days over the last ten years.  When the stock has beaten earnings estimates, it has averaged a big gain of 4.96% on the day, and when it has missed earnings estimates, it has averaged an even bigger decline on the day (-6.96%).  

What's interesting about AMZN is how it trades after its initial gap higher or lower at the open following earnings.  For the typical stock, most of its earnings-related gains or losses are achieved in after-hours or pre-market trading before the stock actually opens.  But some stocks have historically done very well or very poorly on their report days even after their initial gap higher or lower.  In the case of AMZN, when it has opened higher on its past earnings report days, it has averaged a further gain of 2.83% from the open to the close of trading.  And when it has opened lower on earnings, it has typically reversed and gone higher for an average gain of 0.92% from the open to the close of trading.  

Obviously not every stock follows its typical script on each earnings report.  In the case of AMZN, the stock opened higher by $22 on its last earnings report and then it fell $10 from the open to the close to finish up $12 on the day.  Over time, however, there are money-making opportunities out there just by getting a feel for how stocks typically trade around their earnings reports.  There's no better way to identify these trends than to use our Interactive Earnings Report Database.  If you're interested in accessing the database, become a Premium Plus member today! 

Jobless Claims Fall More Than Expected

While it seems that just about every economic indicator being released these days has been weaker than expected, today's jobless claims reading provided a little bit of a bright spot.  While economists were forecasting claims to come in at 350K, the actual reading came in 11K lower at 339K, which is just 5K above the post-recession low.  Click here for additional charts.

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What's Wrong With This Picture?

The chart below compares the S&P 500 since the beginning of 2009 to the weekly bullish sentiment reading from the American Association of Individual Investors (AAII).  The two lowest readings in sentiment during this period came on 3/5/09 (18.92%) and 4/11/13 (19.31%).  If you look closely at the chart, the level of the S&P 500 during these two weeks couldn't have been farther apart.  In early March 2009, the S&P 500 was trading at multi-year bear market lows, while on 4/11/13, the S&P 500 closed at an all-time high.  In other words, investors were as bearish at the depths of the financial crisis as they were when the market hit an all-time high, and that pretty much sums up the state of sentiment during this entire bull market.

Over the last two weeks, we have seen a modest rebound in bullish sentiment, which now stands at 28.29%.  However, even after the rebound, bullish sentiment is currently lower than it has been in more than 85% of all prior weeks during this bull market, and it's well below the average of 37.8%.

Germany Back Above 50-Day Moving Average

European equities including the German DAX have been notable laggards this year.  After falling below its 50-day moving average (DMA) for the second time in just over a week, the DAX broke below the support of its January and February short-term lows last week.  While that was a seemingly negative technical formation, it didn't last long.  In the last three days, the DAX is now up over 4%, and just today the index moved back above its 50-DMA and its short-term downtrend from the mid-March high.  Is this the beginning of a turnaround for German equities and the rest of the region, or just another technical head fake?