Last month, we made the case for taking a more defensive approach to the markets. Our reasoning was based on several factors:
1. The onset of negative seasonal trends (i.e., the “sell in May and go away” argument). There is a persistent historical tendency for stocks to generate most of their positive returns during the six-month period from
November 1 through April 30. Since 1950, the Dow has appreciated 7.4% on average during this favorable period, versus only a 0.4% average return in the May 1 through October 31 interval. The fact that the stock market was very strong in the six months ended April 30, 2011 (the Dow rose 13%) suggested that the stage could be set for this seasonal pattern to play out again this year.
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