If you thought the Melt Up was over after last month, you need to read today’s message…
Stocks fell 6.6% last month. It was the worst May we’ve seen since 2010. And the only other time we’ve seen a worse May decline over the past 70 years was way back in 1962.
Normally, that would be the right assumption. Big declines tend to precede more big declines. But history says that’s not the case with major May losses.
In fact, buying after major May declines has a perfect track record over the next year. It’s led to double-digit gains, on average. And it’s one more reason why the Melt Up isn’t over yet.
Let me explain…
After a major correction in December, stocks bottomed just before the start of 2019. Then, they rocketed higher in the first four months of the year.
The Melt Up was back.
The S&P 500 was up 18% for the year through the end of April. It was a one-way ride higher, hitting new all-time highs along the way.
It seemed like another easy year in the markets… Then the bottom dropped out.
Again, stocks fell 6.6% in May. It was the third-worst May going all the way back to 1950. You can see the decline in the chart below…
Investors were getting cozy with the stock market. And they paid the price last month. The question now is what this major monthly decline actually means…
Is this the end of the Melt Up? Is it time to pack it in and move on?
You might expect that to be the case. But history tells a different story…
To see this, I looked at every May decline of 5% or more since 1950. These kinds of falls happened eight other times. And if you’d bought in those cases, you’d have made money a year later every single time.
That’s a perfect track record. Take a look…
Not only did buying after major May losses make money every time, it often made big money.
The market soared 20%-plus half the time. And on average, stocks jumped 18% over the next year. That’s dramatically better than the typical 8% a year the market has returned since 1950.
There are no guarantees here, of course. This could be the time this strategy doesn’t work. But we have a lot of history that says stocks are a smart bet over the next year.
This already beginning to play out. Stocks have stormed back so far in June. And we’re approaching new highs once again.
I see this as the Melt Up kicking back in. You don’t want to miss this next wave higher. And that’s why my advice remains the same… stay long.
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Source: Daily Wealth