Sell in April and Go Away
While a muddle-through backdrop of only 1.5% to 2.0% real GDP and modest (+5%) profit growth remains my baseline expectation, the market's risk/reward remains unfavorable.
My view was then and remains that:
- market participants are incorrectly assessing the trajectory of domestic economic growth (it is slowing, not accelerating);
- the political backdrop is not market- or business-friendly, with the growing likelihood that Obama will regain the presidency and that the Republican Party will likely control the House and Senate (gridlock and failure to address our fiscal deficit holds risks to the capital markets);
- a monetary cliff is approaching at June's end ("The Liquidity Rally Is Over");
- a fiscal cliff is a threat at year-end;
- there remains risk of further debt contagion in Europe (as risks in Italy and Spain have resurfaced); and
- a meaningful reallocation out of bonds into stocks is no longer likely.
I also have viewed the market's technicals as poor, and I still do:
- new highs are weakening;
- volume is tepid;
- transports and the Russell 2000 are trailing; and
- breadth is lagging, leading to a growing dependency on a handful of stocks in the NBA -- nothing but Apple (AAPL) -- market.
Many hedge-hoggers with whom I spoke agreed with many of my above concerns but were reluctant to reduce their longs because the market's price momentum was so damn good.
It will be interesting to see how those intellectual bears but practical bulls behave in the days ahead. Regardless of their course of action, my strategy is unequivocal.
Why wait until May when you can sell today?
Sell in April and go away.