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Weekend Investor
April 15, 2011, 10:02 a.m. EDT
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By Shawn Langlois, MarketWatch
SAN FRANCISCO (MarketWatch) "” Spring is supposed to be a time of renewal, birds chirping, frost melting. Good stuff like that. But it's also the time when Wall Street's bears wake from their winter slumber, stomachs growling.
Investors beware. Despite what's expected to be a strong first-quarter earnings season for stocks, selling pressure is growing heading into the summer.
"The general rule is to be leery in April and May and then be an aggressive buyer when everyone is going to the beach or having a BBQ later this summer," said Jeffrey Hirsch, editor-in-chief of the Stock Trader's Almanac.
Stock-market sentiment has rebounded sharply since mid-March, according to MarketWatch columnist Mark Hulbert. For contrarian-minded investors, that's an ominous sign. Laura Mandaro reports.
In fact, investors following the Almanac's timing strategy were told late Wednesday to position their portfolios defensively after a sell signal was triggered following the U.S. market close.
Historically, the worst six-month performance period for stocks is April through September, when the market has returned 1.3%, on average since 1945, according to Standard & Poor's Equity Research -- hence the old Wall Street adage to "Sell in May and go away."
The U.S. market's best period, meanwhile, begins in October and ends in March with a 6.7% average return.
Those aren't the only data points signaling a downturn. In fact, only four other times in the past century have equity valuations reached the height of current levels, according to a modified price-earnings ratio created by Yale University professor Robert Shiller.
The scary thing: In all four cases, big market declines soon followed. Read more: How to forecast a stock-market top.
Yet it's worth noting that one experienced group of investors in particular hasn't come down with the spring selling fever. Fund managers polled in the latest survey from Bank of America Merrill Lynch suggests that investment professionals are showing more risk tolerance, shrugging off the seasonal sell signals and much of the world's pressing issues.
After all, there are still gains to be made during the six-month period starting in May. Investors have made money 65% of the time vs. a 77% frequency during the best stretch, according to S&P.
The Merrill report indicated that average cash balances fell to 3.7% of portfolio assets in April from 4.1% in March even as managers expressed growing concern about corporate profits. Of those polled, 19% said they believe company earnings will improve in the coming year, compared to 32% who said the same in March.
Michael Hartnett, Merrill's chief global equity strategist, said "investors are reluctantly overweight equities. The combination of zero [percent] rates and rising inflation makes them fearful of bonds and cash."
Such defensive areas are exactly where Hirsch says investors should be positioned. He recommended two bond exchange-traded funds from iShares: The 7-10 Year Treasury Bond Fund /quotes/comstock/13*!ief/quotes/nls/ief (IEF 93.37, +0.64, +0.69%) and the 3-7 Year Treasury Bond Fund /quotes/comstock/13*!iei/quotes/nls/iei (IEI 114.76, +0.51, +0.45%) , in which he owns a stake.
Dogged by criticism that the new television network has failed to live up to expectations, OWN is launching six series as a way to show that it has credibility in the rough and tumble TV industry, writes Jon Friedman.
1:18 p.m. Today1:18 p.m. April 15, 2011
"Gold rallies to record; silver hits 31-year high http://bit.ly/i6SQxK" 1:11 p.m. EDT, April 15, 2011 from MarketWatch
"U.S. stocks up as economic reports offset earnings http://bit.ly/fmwHGH" 12:05 p.m. EDT, April 15, 2011 from MarketWatch
"U.S. consumer prices climb 0.5% in March http://bit.ly/gkOoDD" 11:13 a.m. EDT, April 15, 2011 from MarketWatch
"Treasury prices set for first weekly rise in a month: Market Junkie blog http://on.mktw.net/h2Mfl5" 10:43 a.m. EDT, April 15, 2011 from MarketWatch
"$BAC reported a quarterly profit of $2 billion on Friday http://stk.ly/fhSDlt" 10:43 a.m. EDT, April 15, 2011 from MarketWatch
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