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May 2023 Market Commentary

By: Sean T. Corkery, CFA, Chief Investment Officer / 02 May 2023
May 2023 Market Commentary- person going over financial charts


Sell in May and Go Away






April 2023 (%)

YTD (%)

1-Year (%)

3-Year Annualized (%)

S&P 500 Index





Dow Jones Industrial Average





NASDAQ Composite Index





Russell 2000 Index





MSCI All Country World Index (ex U.S.)





MSCI Emerging Markets Index





U.S. Aggregate Bond Index














Markets were mixed in April. U.S. Small Cap stocks (Russell 2000) and Emerging Markets stocks posted negative returns,
while the other major market indices we track showed strength with positive monthly results. Year-to-date, the NASDAQ
Composite Index maintained its leadership position, delivering exceptional results on the backs on the index's two largest
sectors, Technology and Communications Services. The trend of concentrated leadership
(highlighted in last month's Market Commentary) continued, with Apple, Microsoft, Amazon, Meta Platforms,
and Alphabet each generating between a 22% and 100% return in 2023.

"It is often much easier to tell what will happen to the price of a stock than how much time will elapse before it happens."

-Philip A. Fisher


Phil Fisher is widely regarded as one of the most influential investors of all time. His common sense approach to investing
simplified the process in a way that the main street investor could understand. Fisher was considered a "growth" investor, but his
analysis of qualitative factors to understand companies set him apart. His due diligence included talking to competitors, suppliers,
customers, and employees, as he believed the information he unearthed better defined how a company operated than just the
analysis of income statements and balance sheets. Above all else, Fisher was a patient investor, willing to wait for large payoffs.


Sell in May and Go Away

Fisher most likely did not subscribe to the investment strategy based on a theory that the stock market underperforms in the
six-month period between May and October. The old Wall Street adage makes the rounds of business cable networks,
newspapers, magazines, and social media sites at this time every year. To follow the strategy, an investor sells stocks at the
beginning of May, keeps the proceeds in cash and then re-enters the stock market at the beginning of November. Simple, but


A review of S&P 500 price-only returns since the turn of the century provides some insight. We analyzed returns for the strategy's
two, six-month periods: May through October (the "Go Away" period) and November through April (the "Come Back" period).
The median return for the 48 periods studied was 
3.4%. The median return of the Go Away period was 6.0%, while the
Come Back period median return was 2.7%. Many would consider a more than doubling of returns a validation of the Sell in May strategy.






Sell in May 2023

The historical data generally supports the investment strategy, but results have been inconsistent. Since 2012, the S&P 500
declined only twice during the Go Away period and averaged a 5% return overall. A 5% compounded annual return over ten
years increases the value of a portfolio by 63% -a return few investors would not miss! Nevertheless, investors may be tempted
to sell this year after the S&P 500 posted an 8% gain since October 31, 2022. And with current yields on money market accounts
exceeding 4%, converting to a 100% cash portfolio seems like an attractive option.


The Tax Man Cometh

Investors should note that the historical data has failings. For one, the returns do not factor in the potential tax consequences
of following an investment strategy that calls for liquidating a stock portfolio six months after purchasing. Since the holding
periods will be less than one-year, short-term capital gains or losses will be incurred annually if the strategy was deployed in a
taxable account. Short-term capital gains are taxed at the investor's ordinary income tax rate, likely between 0% and 37%.
For comparison, long-term capital gains (holding a security more than a year) are taxed between 0% and 20%.
By no means is this tax advice. However, understanding the tax implications of following a trade-heavy investment strategy is common sense.


Math Matters

Median returns do not equate to actual returns as outlier period returns can greatly impact total returns. Said another way,
the numbers do not tell the whole story. The chart below shows how a $1 million investment made in the S&P 500 on
10/31/1999 following two different strategies changed in value through 4/30/23. To simplify the exercise, the comparison was
made with no tax consequences. Following the Sell in May strategy (blue), the $1 million portfolio grew to $2.7 million.
A Buy and Hold strategy (red) produced a $3.1 million portfolio. Despite a higher median return, the Sell in May strategy trailed
the Buy and Hold strategy.











Finding the Right Balance

A Buy and Hold strategy has its merits and notable practitioners. In his 1998 Berkshire Hathaway letter to shareholders,
Warren Buffett said "Our favorite holding period is forever." However, Buffett actively manages his investment portfolio.
In the fourth quarter of last year, Buffett and his team made partial sales on 8 of the 49 total positions. Investors can optimize
portfolio diversification by actively rebalancing positions. Methodically capturing gains and losses may balance tax obligations.
Worth noting, the Buy and Hold investor would be sitting on a portfolio with $2.1 million of unrealized gains, while the Sell in May
investor would have about $200,000 of unrealized gains in our overly simplified example. When the time comes to liquidate in
this example, the Buy and Hold investor could be faced with a much higher tax bill than the Sell in May investor.


Looking Ahead

As we enter May, we acknowledge the risk factors challenging investors have not materially changed over the past several
months. The Federal Open Market Committee (FOMC) will meet this week and according to the CME FedWatch Tool, there is
an 84% probability the FOMC will raise the Federal Funds Rate by 0.25%. What happens over the remainder of 2023 is unknown,
but the markets believe the Federal Reserve will reverse course and reduce rates later in the year. The FOMC, on the other hand,
forecasts a 5.1% median year-end rate, up from the current 4.75% to 5% level. The disconnect between the market and the
Fed will be resolved, but until then the uncertainty bears acknowledging.

Last week, the U.S. House of Representatives passed a debt-ceiling bill in an effort to avoid a government shutdown.
The bill moves to the Senate where negotiations will be needed for approval. As we inch closer toward a cash crunch for the
government, perhaps as early as June or July, we expect market volatility will pick back up if an agreement is not reached.

First quarter earnings season has been better than feared with a majority of S&P 500 companies reporting better than expected
results. After trending lower for the last several months, full-year 2023 earnings estimates ticked higher. The current trend is
encouraging. The forward Price/Earnings ratio for the S&P 500 is 18, slightly below the 5-year average, but above the
10-year average. For individual stocks, valuations vary greatly. Selectivity and patience are prudent.


We appreciate your confidence and support and hope you reach out to an Old Point team member with any questions.
Please keep an eye open for an invitation to join us for a Virtual Market Commentary on May 17th. Eric Kauders and I will be
discussing a few timely topics, including recession concerns, market valuations and opportunities.
















Old Point Wealth Management makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any
errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on
this report or its contents. Old Point Wealth Management, its affiliates and/or their respective officers, directors or employees may from time
to time acquire, hold or sell securities mentioned herein.
















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