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The Sandy Spring Way

“Sell in May and Go Away…”

May 13th, 2013 | By Beau Mercer

Beau Mercer‘Sell in May and Go Away’ is a trading maxim which, according to Investopedia, encourages an investor to “sells his or her stock holdings in May and get back into the equity market in November…” Traders who adhere to that adage may be pondering averages and exceptions right now. During the first two weeks of the month, the Dow Jones Industrials Average, the Standard & Poor’s 500, and the Russell 2000 Indices all reached new highs. The Dow passed 15,000, the S&P reached 1,600, and the Russell 2000 hit 968.

Bulls are in the majority among investors, although there is some bearish sentiment, according to the Bull and Bear Wise Index. Investors’ changing expectations are reflected in CNNMoney’s Fear & Greed Index which showed investor sentiment has shifted from ‘fear’ one year ago to ‘extreme greed’ last week. The premise of the index, which measures seven indicators, is investors are driven by two emotions: fear and greed. When investors are fearful, stock markets may fall more than they should; when investors are greedy, markets may be pushed higher than they should be.

Investors’ inclination toward stocks may be one of the reasons for declines in the value of gold and commodities last week.

Although there was little of it, economic news generally was positive last week. The U.S. Labor Department announced the number of Americans filing initial claims for jobless benefits dropped unexpectedly. Approximately 323,000 people filed for unemployment benefits which was about the same number that filed each week before the recession started in December 2007. According to Bloomberg, investors took the news as a sign the U.S. economy is improving which helped push yields on 10-year Treasuries higher.

Perceived economic strength in the U.S. caused the U.S. dollar to gain against many of the 16 major world currencies last week, as well as the 24 emerging countries’ currencies tracked by Bloomberg.com.

Data as of 05/10/13 1-Week YTD 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks)

1.3%

14.6%

20.3%

12.1%

3.1%

5.6%

10-year Treasury Note (Yield Only)

1.9

N/A

1.9

3.5

3.8

3.6

Gold (per ounce)

-2.9

-15.8

-10.8

6.0

10.1

15.1

DJ-UBS Commodity Index

-0.9

-5.1

-3.0

0.4

-9.3

1.2

DJ Equity All REIT TR Index

0.8

16.0

22.4

17.4

7.0

12.3

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

WHERE WILL YOU LIVE DURING RETIREMENT?

As with many of life’s important questions, the answer depends on you and, possibly, your partner or spouse. Before you make a decision and decide to retire to wherever your grandchildren live (or in your favorite vacation spot) you might want to take a moment and consider the tax implications of your decision.

If your grandchildren live in Alaska, Nevada, Wyoming, Mississippi, or Georgia, you’re probably okay. Each year, Kiplinger.com reviews the tax rules of each of the 50 states, giving special consideration to states which offer attractive tax incentives to retirees and then provides a list of those states it deems most tax-friendly for retirees. For 2012, Kiplinger reported the five states listed above were the most tax-friendly. According to the article,

“All of these tax havens exempt Social Security benefits from taxation (and some impose no state income tax at all). Many of them exclude government and military pensions from income taxes, and some exempt private pensions, too. A few offer blanket exclusions up to a specific dollar amount of retirement income from a wide variety of sources, which is important if you depend on distributions from IRAs and 401(k) plans rather than traditional pensions. Review all of your sources of income before you decide which state may be the best fit for your retirement home.”

Kiplinger.com reported the least tax-friendly states included Connecticut, Vermont, Rhode Island, Montana, and Minnesota, which have one or more of the following:

  • Estate or inheritance taxes
  • High property taxes
  • No tax breaks on Social Security benefits
  • No special treatment for various types of retirement income

Source: Kiplinger.com

No matter where you decide to settle, it’s important to evaluate all of the factors which may affect your income during retirement.

Weekly Focus – Think About It

“Every saint has a past and every sinner has a future.”

–Oscar Wilde, Irish writer and poet