Summary:

• US stock performance in May midterm years not that negative
• The month has been volatile though, presenting good opportunities
• Apple earnings after the bell

The old trading adage “sell-in-May-and-go-away” is well known and widely quoted, but how much truth is in it? As the month begins it is worth looking back at historical data on the S&P500 (US500 on xStation) to see how the market has performed throughout May. When looking at seasonality and the possible impact this could have on the stock market, it may be also useful to look at other cycles which have an impact such as the US presidential cycle in conjunction with returns in May. Politics have obviously had a strong impact on US stocks and as we approach the midterm elections in November their influence may grow once more. 

 US stocks don’t show too much negative seasonality for the month of May in midterm years, although they do clearly exhibit far higher levels of volatility. Source: @Oddstats, Yahoo Finance

Going back to 1950 there have been 17 Mays in midterm years with 8 of these producing gains in the S&P500 and 9 resulting in drops – so, not much difference really. Looking at the average size of the move based on the mean it is apparent that the risks could be skewed a little more to the downside with the average decline being 4.61% if the market drops. On the other hand the average gain is 3.34%. 

Whilst this could be seen to show a a slight negative seasonality effect on the market, the biggest takeaway could in fact be the size of the moves. Of the 17 Mays in the data set, 11 have produced moves in excess of 3% and 5 more than 5%. Or to view it from another perspective only 2 of the 17 have produced monthly changes less than 1%. This could be seen to suggest that we are in for some good moves in the month ahead. With this knowledge of past performance in mind, let’s turn our attention to the present charts. 

The US500 has drifted back lower to trade not far from its 200 day SMA once more. Source; xStation

The US500 continues to hug the 200 day SMA and whilst the bulls managed to defend the level last week, price is once more falling back towards it. A decisive drop below here would indicate a possible trend change and given the previous volatility seen in the month of May could lead to a sizable decline. 

One stock on the US500 that will no doubt gather a lot of attention in the next 24 hours is Apple, with the firm set to release its latest results. 4 things that investors will be looking closely at are as follows:

• iPhones sales – Most analysts expect 52.53m iPhones in Q1; up 2-4% Y/Y and bringin in revenues of around $61B
• Capital returns – How will the firm follow through on the plans to run down its entire net cash balance of $163B? Analysts forecast as much as $100B returned to shareholders vie dividends and share repurchases
• Services and other products – Is there life beyond the iPhone? Morgan Stanley predicts services revenues to have grown 28% Y/Y to $9B in the quarter. “Other products” such as the $350 smart speaker are predicted to show $4.1B in sales – up 43% Y/Y
• Outlook – What does Apple see going forward? Can iPhone sales hold up until the new model arrives in September? Wall Street expected revenues of around $52B for the current quarter – based on 42m iPhones sold

The price of Apple shares (AAPL.US on xStation) has seen some weakness in recent weeks, falling back from the all-time high seen above 183 to currently trade in the mid 160s. However, the market is still a long way higher over the past 18 months and traders will be watching tonight’s release very closely to see whether the company has started 2018 well and mount another push higher or whether a deeper pullback lies ahead. 

 Apple has pulled back from its all-time high ahead of tonight’s earnings release. Source: xStation