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Wall Street Breakfast: Sell In May?

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Wall Street Breakfast

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Sell in May?

Enthusiasm for stocks couldn't be higher, with individual investors holding more equities than ever before, fueled by a blowout earnings season, the prospect of an economic recovery and extra savings like stimulus checks. Stockholdings among U.S. households even rose to 41% of their total financial assets in April, the highest level on record, according to data from JPMorgan and the Federal Reserve. That kind of optimism has led the S&P 500 to hit 25 records this year alone, while logging its third straight month of gains in April by adding more than 5% to the index.

Sell in May and go away? The investment strategy posits that equities tend to underperform in the six months through October, so investors should convert to cash at the start of May and then buy into a dip later in the fall. "With stocks at record highs, some investors may be tempted to follow the old adage," UBS wrote in a research note. “In the U.S., a stay invested strategy has tended to outperform, particularly in recent years. Market composition, with the U.S. market more tilted towards growth stocks, partly explains the outperformance."

Others, like billionaire investor Leon Cooperman, have "an eye on the exit." The self-described "fully invested bear" is worried about market valuations and thinks "we should recognize were pulling demand forward and the longer-term outlook is not particularly favorable." He also expects an upcoming rise in taxes and inflation, which may force the central bank to signal action before the end of 2022.

Starting the new month: U.S. stock index futures climbed overnight, with the Dow up 0.6%, and the S&P 500 and Nasdaq ahead by 0.4% and 0.2%, respectively. The Manufacturing PMI and ISM Manufacturing data for April will be released this morning, shedding light on the economic situation before Friday's big non-farm payrolls report. Investors will also be watching the next batch of corporate earnings, including Q1 results today from Enterprise Products Partners (EPD), ON Semiconductor (ON), Realty Income (O) and Omega Healthcare (OHI).

Epic showdown

A high-profile legal battle set to begin today between Apple (NASDAQ:AAPL) and Fortnite creator Epic Games will determine how a "market should be classified in the digital age." It's one of the biggest cases brought against Apple since the company was founded in 1976, and the consequences could be huge. A verdict could see developers no longer having to do app "checkouts" with Apple, or having to pay a 30% "app tax" to the tech giant, which would dent its fastest-growing Services business segment.

Backdrop: The legal fight started last year when Epic created its own direct payment method within Fortnite, circumventing fees paid for App Store purchases. Apple then issued a warning to Epic regarding the workaround, but the latter refused to remove it, and Apple kicked the developer off its platform. A lawsuit then emerged, which is finally seeing its day in court. Executives testifying at the trial will include Epic CEO Tim Sweeney and Apple CEO Tim Cook, though neither side wanted a jury trial, leaving the decision to U.S. District Judge Yvonne Gonzalez Rogers.

Epic's argument: With over 1B users across the globe, the iPhone market - is itself a market. Meaning, developers can only reach this massive demographic via the App Store. Apple is essentially "forcing" them to use its mechanism (to have the app downloaded) and its app payment system (to have people pay for purchases).

Apple's defense: The company feels it built an ecosystem where app developers of all sizes formed multi-million or even billion dollar businesses over the last decade. Anyone that doesn't want to pay the 30% commission is asking for a free ride in a market it created, which it updates and maintains via new features and security details.

Apple seems to have the edge in terms of legal precedent, but the tech giant ended the week with an antitrust warning from the EU, which said Apple "abused its dominant position for the distribution of music streaming apps through its App Store." That decision, which followed a complaint from Spotify (SPOT), was preliminary and Apple will have time to respond. But if the finding holds in the final decision, Apple could face a fine of up to 10% of its annual revenue and be forced to make changes to its App Store business model.

Ethereum steals the limelight

Continuing to set fresh record highs, ether (ETH-USD) climbed above $3,000 on Sunday for the first time in history, and was last changing hands at $3,097.87, up 6.1% over the last 24 hours. Only a year ago, it traded for around $208, an increase of 1,359%, and this year alone, the crypto is up 310%. Adding to the gains... Ether surged 25% over the past week and the digital asset now has a market cap of about $350B, according to CoinMarketCap.com.

What's driving recent demand? Crypto analysts are pointing to a broader awareness of ether's smart contract platforms, which are powering the landscape for NFTs, Web 3.0 apps and decentralized finance (DeFi). In fact, the amount of capital locked in DeFi protocols just crossed $68B, which is up thousands of percent compared to the beginning of the year. Last week, the European Investment Bank even announced that it had issued €100M in two-year notes, using the ethereum blockchain for the first time.

"Flippening" has also re-entered the crypto conversation - a term that refers to the belief that ether's market cap might soon top that of bitcoin (BTC-USD). Many bitcoin believers maintain that is outside the realm of possibility, though daily transaction count on Ethereum's blockchain has increased by 22% to 1.376M this year. Market research firm Fundstrat further wrote in a recent research note that ether could hit above $10K by the end of this year, driven by a crypto narrative that's shifting to ethereum from bitcoin, but it also expects the latter to reach $100K before 2022.

Outlook: While the Ether and Bitcoin have not de-coupled yet, correlations between the two are shrinking. Ether has quadrupled so far this year, while Bitcoin hasn't even doubled, and the ratio between the currencies recently climbed to 0.052, the highest level since mid-2018. However, Bitcoin and Ethereum are still looked at as the reserve assets of DeFi (can earn interest on them or borrow against them), which creates leverage in the system and connects the two currencies.

Vaccine patents

Pressure is building on the U.S. and other Western governments to suspend intellectual property restrictions on COVID-19 vaccines as an explosion of coronavirus cases rocks India and other nations. Some 60 developing countries, led by India and South Africa, are drafting a new proposal to waive WTO rules, known as TRIPS (Trade-Related Aspects of Intellectual Property Rights), which could allow a significant increase in vaccine production worldwide. The new proposal will be put to the organization in the next few days and would echo an effort back in the 1990s that lifted patents on AIDS medications.

"We have to evaluate whether it's more effective to manufacture here and provide supply to the world, or the IP waiver is an option," White House press secretary Jen Psaki said last week. President Biden hasn't yet made a decision on whether the U.S. will support the waiver - which is backed by more than 100 members of Congress and 170 former world leaders and Nobel Laureates - or to push for other means to speed up immunization in developing nations.

The case against a suspension: A number of large pharma companies, including vaccine developers Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ) and AstraZeneca (NASDAQ:AZN), say waiving IP rights wouldn't solve supply problems in the short term because contract producers lack familiarity with the new technology behind the shots (which isn't shielded by patents). Obstacles to scaling up production also include the need to train technicians, source scarce ingredients and sensitive biological components. Quality checks are another concern, with a limited number of manufacturers capable of large-scale vaccine production.

The case for a suspension: Proponents of the waiver proposal say there are more than a dozen drugmakers in developing countries that could be equipped to produce the shots and have passed quality checks by the WHO and the FDA. It would allow the nations to make their own copies of the vaccines without fear of being sued for IP infringements. The U.S. government owns patents related to the vaccines because some of the technology behind the shots were developed at American government labs.

Outlook: While Pfizer and Moderna (NASDAQ:MRNA) have been known to drive a hard bargain when negotiating vaccine contracts, AstraZeneca and Johnson & Johnson have pledged to provide their jabs on a not-for-profit basis until the pandemic is over. Future profits for vaccines may also depend on how often or for how long seasonal boosters will be required. Given the number of vaccines in development, competition could keep a lid on costs, though if some shots prove more effective than others, profits could skew largely in favor of the successful vaccine makers.

Highlights from Capitalist Woodstock

"The U.S. economy was resurrected in an extraordinarily effective way" when the Federal Reserve took actions last year in response to the pandemic-induced recession, Warren Buffett said during Berkshire Hathaway's (BRK.A, BRK.B) virtual annual meeting. The Fed "moved with speed" and demonstrated that they would do "whatever it takes" to restore bond market trading, which had frozen early in the pandemic. About 85% of the economy is now running in "super high gear."

Energy: Asked about whether climate change rhetoric has become too irrational regarding investments in fossil fuel companies, Buffett said "people on both extremes are a little nuts." "I would hate to have all the hydrocarbons banned in three years - it wouldn't work... but I do think the world is moving away from them too," he added. Buffett still has "no compunction in the least about owning Chevron (CVX)."

Tech: Mega-cap tech stock valuations are not "crazy," he declared, outlining that Berkshire's sale of some Apple (AAPL) shares last year "was probably a mistake" and "Charlie in his usual way let me know it was a mistake." Charlie Munger is Buffett's 97-year-old business partner and vice chairman of Berkshire.

SPACs: "It's a killer," Buffett said. "When the competition is playing with other people's money... they're going to beat us... We're not going to have much luck as long as this continues." He also likened the SPAC craze to gambling. "It's shameful what's going on. It's not just stupid, it's shameful," added Munger.

Taxes: Buffett declined to speak about what he feels about the proposed federal tax changes - saying it's not appropriate to express his views at Berkshire's annual meeting - though he's not worried about the possibility of higher corporate taxes. Buffett also said he voted for Biden in the presidential election.

Robinhood: "I'm looking forward to reading the S-1 [IPO prospectus]," Buffett said. "It's become a very significant part of the 'casino' part" of the market. There's nothing illegal about it, there's nothing immoral. But I don't think you build a society around it," he added. Munger took a stronger stance, calling the gamification "deeply wrong."

Crypto: Buffett declined to comment on bitcoin (BTC-USD), but Munger let it rip: "Of course, I hate bitcoin's success... it's creating a financial product out of thin air. I don't welcome currency that is so useful to kidnappers and extortionists."

Portfolio advice: "You couldn't help but do well if you had a diversified group of equities. There's a lot more to picking out stocks" than figuring out which industry is going to have a bright future, Buffett added. He then pointed out that in the 1930s there were more than 2,000 auto manufacturers in the U.S. "In 2009, there were three left and two went bankrupt."

What else is happening...

Berkshire's (BRK.B) operating earnings jump, buybacks slow from Q4.

New assessment could shutter Energy Transfer's (ET) Dakota Access Pipeline.

Is Brooklyn ImmunoTherapeutics (BTX) the next GameStop?

Dell (DELL) strikes $4B deal to sell Boomi cloud business.

Tesla (TSLA) is said to delay German production start by six months.

Big payday for Elon Musk after unlocking ludicrous stock award.

Sale of Verizon Media (VZ) to Apollo (APO) could come today.

U.S. cannabis stocks to enjoy further upside - Barron's.

Electoral setback for ruling party as COVID-19 surges in India.

Intel (INTC) reportedly mulling Sports Group sale amid foundry push.

Today's Markets

In Asia, Japan closed. Hong Kong -1.4%. China closed. India -0.1%.
In Europe, at midday, London closed. Paris flat. Frankfurt +0.3%.
Futures at 6:20, Dow +0.6%. S&P +0.4%. Nasdaq +0.2%. Crude -0.4% to $63.30. Gold +0.6% at $1777.40. Bitcoin +3.3% to $58640.
Ten-year Treasury Yield +1 bps to 1.64%

Today's Economic Calendar

9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
2:10 PM Fed's Williams Speech

Companies reporting earnings today »

This article was written by

Wall Street Breakfast profile picture
Wall Street Breakfast, Seeking Alpha's flagship daily business news summary, is a one-page summary that gives you a rapid overview of the day's key financial news. It is designed for easy readability on the site or by email (including mobile devices), and is published before 7:30 AM ET every market day. Wall Street Breakfast's readership of over 3.4 million includes many from the investment banking and fund management industries. Sign up here to receive the Wall Street Breakfast in your inbox every business day.Check out our Podcast RSS feed

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Comments (70)

Market sucks as the institutions and wealthy take money out of the highfliers. Earnings season has only caused disappointment, not glee.
Poor Apple. Let's give them a break. has anyone seen the horribly cooled iMacs now available in various colors? It's a revolution in computer design. Apple innovates by applying colors to the exterior of their overpriced junk! Many have tried it before but Apple made it simple enough for the rest of us.!!
maddaj19 profile picture
"Sell in May and go away" hasn't been a thing in 50 years. For younger folks in the group; in the age before personal computers and the 24 news cycle, bankers would often close a significant portion of their positions prior to "summering" on the Cape Cod or Long Island, or wherever. It's not a thing anymore and the author should stop perpetuating the myth.
If I cannot take advantage of a bunch of degenerate gamblers favorite superstitions, I might as well cash out and buy a CD.
Kyle Fishman profile picture
This whole business of "sell in may and go away" is just a silly rhyme.

sometimes stocks do good in May.
Anyone else doing some research in to Chia?

Hasn't gone public, yet. Been around for a few years. Similar to bitcoin, however, the energy requirements are much less.

Not saying buy it......just wondering why we haven't heard much about it. Unless you dig a bit.
VoiceofSanitySometimes profile picture
I have to go find the comment where I predicted this, but here it is from CNBC

"New Jersey to give free beer to Covid vaccine recipients"


Now that it is legal in the state, will NY one-up them and offer a nice fattie with your covid vax?

CVS, Walgreens, RiteAid now all taking same-day appointments for vaccines as well (in most states).

I have to give Gottlieb some credit too because he called the peak at about 125MM full vaccinations in the US, and he'll end up being very close....

I'm holding out for a 21 year old bottle of single malt...
Voters Not Very Confident in Biden’s AbilitIes. He's blowing the Covid vaccine roll out. Open up the economy.
Ben Gee profile picture
@VoiceofSanitySometimes I bought an 8 years old Scotch 30 years old, I have not open it yet, is it as good as a 21 years old Scotch?
@Phil Dumfee Actually, a lot of voters are much more confident in Biden's leadership.
Just think how much higher the market would be if the trillion plus dollars in the bitcoin type coins weren' available
@john boy good point. A Trillion dollars of stimulus could have gone into stocks or created jobs instead of getting sucked into tge crypto scam. Where are the regulators hiding?
I thought Qualcom litigation with Apple for license fees was pretty epic
Walk away in May? Charlie Munger said something to the effect that you should never unnecessarily interrupt the compounding process. Always a condrumdum.
@Dr.Think Different markets blue ribbon stocks with solid dividends vs growth stocks and tech stocks
Bitcoin does not have intrinsic value. It is a specualtive investment.
@timdalby the electrical cost to produce blocks?
bitcoin sucks electricity away from EV batteries. It's parasitic.
When interest rates go up the party is over. Even for bitcoin.
Especially for Bitcoin.
@timdalby very likely indeed. Mr. Buffet mentioned inflation risks at the just held annual mtg. As to your comment the Treasury today announced variable interest rate on the I bond. The variable rate was raised from 1.68% for the previous six months to a 3.54% for current period, May to November.
Heard from acouple investment houses think that were at around 4% inflation now and I would not doubt it
Strike profile picture
I am ot a fan of Bitcoin (I far prefer ethereum), but Charlie Munger cannot see the wood for the trees:

". I don't welcome currency that is so useful to kidnappers and extortionists."

Then why does he own a single U.S.Dollar which has been the currency of choice for crooks and extortionists ever since it became the global fiat currency?

P.S., Escobar had hundreds of millions of buried dollars eaten by rats.
@Strike what lmao US is legal tender. Bitcoin not used for legal purposes, Why are you even making that comparison.
I like tulips better than tulipcoin.
VoiceofSanitySometimes profile picture
VZ sells Yahoo and AOL for about 1/2 what they paid for it 4 or 5 years ago. $5B loss divided by about 4B shares outstanding = $1.25 per share.

I guess they were smarter to sell it than to hold it and have it decline further...
Invader from Earth profile picture
The news on $TSLA seems to be BEARish propaganda that is NOT based upon fact. Tesla has no Investor Relations PR wing to police these spins. Ugh!
@Invader from Earth

Their PR wing is Musk`s twitter account.
Invader from Earth profile picture
I continue to be amazed of the $PLUG BULLs. It’s GAAP Losses are now over $10 million/week! Yikes! There are no audited accounting records for the past four years. The BOD is delaying the restatement of the accounting records. The BOD creates cash by selling gobs of stock that has been diluted into worthless paper... yet there are BULLs. Yikes!
Wineguy1001 profile picture
So Buffet was correct when he calls it "gambling?' @Invader from Earth
Betting on the horse with the lead.
blueline profile picture
"Buffett also said he voted for Biden in the presidential election."

Well of course he did! He has and continues to make a fortune shipping oil from Canada on his rail cars.

Pipelines are a cheaper and safer way to move oil and would have cost Buffett millions.
belz profile picture
Understand that the pipeline would not cut rail shipping of oil. It would ADD oil shipping capacity which is exactly what Alberta oil producers are looking for.
Replacing rail by a pipeline is not on.
@belz _ that is simply wrong. It costs about $12-$14 per barrel to ship via rail and ~$4.00 to ship to the same location by pipeline. Plus pipelines are many times safer than rail cars. If Keystone pipeline were in operation, crude by rail would dry up to virtually nothing. Oil sand investments are in the billions, takes years to develop and even longer to payback the investment - it is very unlikely that we'll ever see an investment in a new plant as the world moves away from hydrocarbons
taxman100 profile picture
@blueline That was the payback he expected by supporting Biden.

Didn't "common man" Buffett make billions using his political connections regarding the 2008 Wall St. bailouts that resulted in his preferred debts he bought to skyrocket in price?
"That decision, which followed a complaint from Spotify (SPOT), was preliminary and Apple will have time to respond."

Can Apple be found to be abusing their monopoly for only those specific areas where they also have an app? Or is it an all or nothing thing?
@ThisIsMyName I am okay with Apple and their monopoly if it helps (as it surely seems to) keep toxic malware apps off of their devices.
@bull_rider That part is definitely true, there's no "seems to" about it.
@bull_rider In other news, PCs were found to be more secure than Macs.
I'm not about to sell in May and buy in October. A) I am lousy at timing the market and B) I get a steady stream of dividend income which is all being re-invested in my IRA. All the while stock prices are down I am getting more shares at a cheaper price, so I am taking advantage of the market lull and get the boomerang effect on my dividends when the market recovers - an increase in the value of my cheaper-bought shares, and dividends from more shares too.
@bull_rider By not selling, you also avoid paying capital gains taxes.
Looks like a massive Nasdaq double top.
Ford stopping production in Germany due to chip shortage (aka Brexit and pandemic double dip recession) plus Germans only buy German cars.
And buy what? Bonds?
@idontknowwhatimdoinghere ..Read the article. The old adage is about going cash May-Oct.
Buy after October crash.
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