The Lato Letter: Volume 1, Issue 13.

The Lato Letter: Volume 1, Issue 13.

Every year at this time, the stock market adage of “sell in May and go away” is bandied about and presents one more reason for investors to shy away from equity markets.  Historically, the performance of the S&P 500 Index shows the adage to be valid.  Since 1950, the average return on the S&P 500 from November 1st to April 30th has been 7.74% while the average return from May 1st to October 31st has been 0.60%.

Unlike the previous two years, the first day of May this year certainly defied the adage with strong gains across all North American equities.  It is only one day but there are a number of differences, particularly with last year, that suggest that 2012 may be one of those years that defies the adage.

I came across a piece earlier today on “Real Money.com”, written by Doug Kass, that discusses many of these differences.

One of the more interesting aspects of the article is the continued risk aversion of investors.  Inflows into US equity funds during the first four months of this year continued to decline and were lower than the same period last year.  The continued risk aversion and still very fair valuation of equity markets provides confidence that it could pay to stick around this year.

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