Why Stocks Could Be 'Dead Money' For The Next Few Months

It’s once again that time of year when investors start bringing up the old Wall Street adage “sell in May and go away.”

Historically, the S&P 500 has generated its weakest returns from May to November. In fact, going back to 1950, the six-month stretch from the beginning of May through the end of October has generated an average return of just 1.5%, making it the weakest six-month stretch of the year.

Reasons For Caution: This year, the S&P 500 started off the month of May with a gain, but Hilary Kramer, chief investment officer for Kramer Capital Research, said Monday there are plenty of reasons for investors to be cautious on the stock market in the near-term.

Kramer said the market’s lackluster reaction to a spectacular first-quarter earnings season is a clear sign stocks are already priced to perfection. Even with aggressive stimulus and dovish monetary policy, Kramer said the S&P is looking pricey trading at around 22 times earnings.

In addition, she said additional stimulus checks are unlikely at this point, and federal infrastructure spending is still at least several months away.

In the meantime, vaccination slowdowns, tax fears and inflation spikes are three substantial risks to the stock market in coming months.

For now, Kramer said investors are looking for defensive yield stocks or high-risk growth and meme stocks, such as electric vehicle stocks, cryptocurrencies and penny stocks.

“Stocks in the middle are probably dead money for the next few months,” she said.

Related Link: Does 'Sell In May And Go Away' Actually Work?

Lock In Gains: Jeff Carbone, a managing partner for Cornerstone Wealth, is also urging investors to at least consider taking some profits in the growth stocks that performed so well in the past year.

“If you are overweighted in Technology, Energy, Financials and Consumer Discretionary reducing the exposure and adding a more balance or barreled approach to one’s portfolio may be wise,” Carbon said.

He recommends investors consider rotating into more defensive sectors, such as utilities, communications and consumer staples.

Benzinga’s Take: The S&P 500 may continue to drift higher in the next six months, but the easy money off of the March 2020 lows has likely already been made at this point. The biggest thing for investors to watch for in the near term is inflation, especially after Warren Buffett said last weekend that he's currently seeing “very substantial inflation” in the economy.