🎙️ May Day?

Berkshire Hathaway’s annual meeting is here. Are you in Omaha this weekend?

The annual meeting won't feel the same for shareholders, though; it’s the first since Charlie Munger, whom Buffett has called the “architect” of Berkshire Hathaway, died in November.

But rest assured, the event will be fine and dandy. Hearing Warren Buffett talk is always a treat, so we’ll have more Buffett-themed insights and takeaways on Sunday. In Buffett’s honor, we’ll also crack open a can of Coca-Cola as the 'Oracle of Omaha’ spews wisdom for hours on end.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Sell in May and go away?

• Apple, Amazon earnings takeaways

This, and more, in just 5 minutes to read.

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In The News

🤔 “Sell in May and Go Away” Isn’t as Useful as It Once Was

The Wall Street adage "sell in May and go away" — popularized by the Stock Trader's Almanac — has long been a staple strategy among investors. It recommends selling stocks at the start of May and then re-entering the market in November. 

Is it still true?

The short answer: Yes, but less than it used to be. 

A 20th-century wonder: A new study delves into the historical validity of this idea. Researchers examined stock data spanning from the 1950s to 2023, and here’s what they found:

• Adhering to the "sell in May and go away" strategy yielded notably favorable results in the 20th century. (It’s also known as the “Halloween indicator” because it suggests buying stocks right after Oct. 31.)
  

• Large-cap stocks held outside the May-to-October period between 1950 and 1999 boasted an annualized return of 19.62%, substantially higher than the 6.72% return during the summer/fall months.
  

• Plus, the strategy came with reduced risk, as indicated by lower volatility outside the May-to-October timeframe (12.44% compared to 14.14%).

Staying power: The "sell in May and go away" strategy remains somewhat true in the 21st century: Investors have achieved higher returns by adopting it.

Why it matters:

The new century: In the past 23 years, the strategy delivered higher returns than holding stocks throughout the year.

• Annualized returns outside the May-to-October period declined to 13.29%, with a reduced disparity compared to the returns during the summer/fall months, which stood at 8.64%.
  

• But the risk dynamics shifted. While historically, the summer/fall months were riskier — assuming you see price volatility as a measure of risk — the volatility during this period in the 21st century was actually lower compared to the rest of the year (14.31% compared to 17.50%).
  

How they did it: Researchers categorized stocks into various classes, including U.S. growth, U.S. value, large-cap U.S., small-cap U.S., and international stocks. They analyzed two distinct periods: pre-2000 and post-2000 through 2023. Within each time frame, they compared average returns and volatility between May to October and the remaining months of the year.

The bottom line: The researchers concluded: “In all, it appears that there is still some truth to ‘sell in May and go away’ in the 21st century as you can indeed score higher returns by selling before summer starts and going away until after Halloween. But heeding the advice now comes with greater risk.”

Of course, we’re skeptical of whether the strategy has any substance. We guess that it’s just statistical noise, a byproduct of randomness. If you have different thoughts, write to us (just hit reply on this email).

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💸 Earnings Wrap: Apple, Amazon Rally After Earnings

Another week, another set of important earnings among the world’s most valuable and ubiquitous companies. Here’s what you need to know from Apple and Amazon:

Apple

On Berkshire weekend, we have to start with a Buffett favorite.

Apple's fairly strong performance in the last quarter, despite a 4.3% revenue decline, showcases some resilience. 

Big buyback: Revenue of $90.8 billion exceeded analysts' expectations. This triggered a stock bump Friday—also thanks to its new $110 billion share buyback, the largest in the company’s history—marking its best daily gain (6%) since November 2022. 

• CEO Tim Cook addressed concerns about Apple's future growth, particularly in China, where smartphone sales dipped 19%. Yet Apple's revenue in Greater China was $16.4 billion, surpassing analysts' forecasts and suggesting a more positive outlook than anticipated.
  

• Cook emphasized that iPhone revenue grew in mainland China, indicating strength in the market despite broader concerns.

Big AI announcement? Looking ahead, Apple is poised to introduce new iPads, marking the first updates to its tablet line in nearly two years. It also plans to delve into generative artificial intelligence—Cook is expected to outline Apple's AI strategy on May 7 at its upcoming Worldwide Developers Conference.

Cook pointed to further growth in markets outside of the U.S.

Speaking of Indonesia, he said: "These are markets where our market share is low. The populations are large and growing. And our products are really making a lot of progress.”

Apple continues to emphasize its commitment to services, which saw revenue grow 14% to $23.9 billion. This segment includes Apple Music, the TV+ streaming platform, and iCloud subscriptions. 

The stock: After a rough start to 2024, Apple shares are about flat on the year. They’re up 10% in the past 12 months and ~250% over the past five years.

Amazon 

Amazon keeps strengthening.

The e-commerce giant’s cloud unit, Amazon Web Services (AWS), saw strong sales growth, up 17% to $25 billion, signaling recovery from a previous slump as businesses invest in technology projects, including AI services. 

• CEO Andy Jassy's focus on profitability in the online shopping business and investments in AI services is paying off. 

• “We’re seeing strong demand signals from our customers on the AWS side,” he said. “They’re signing longer deals with larger commitments, many with generative AI components.”

A cloudy world: CFO Brian Olsavsky highlighted the strong demand for AWS, particularly in generative AI, which is now a "multi-billion dollar revenue run rate business." That was fast.

The quarter wasn’t all sunshine and rainbows. Amazon's sales forecast for the current quarter fell short of estimates, reflecting cautious consumer spending in the main e-commerce business. Despite e-commerce sales of $54.6 billion, slightly missing estimates, advertising revenue rose 24% to $11.8 billion. AWS's operating margin hit 37.6%, its widest since sales disclosure began, with a profit of $9.42 billion in the quarter.

• To support AWS growth, including in generative AI, Amazon plans to increase capital expenditures: It will spend more than $150 billion to build and operate data centers in the coming years.

The stock: Amazon shares are up 24% this year, 80% in the past 12 months, and roughly 97% over the past five years. 

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Quick Poll

On Wednesday, we asked: Would you consider opting for a 401(k) plan with embedded annuities for your retirement savings? Why or why not?

— Among those who would consider the new plan, several answers were to this effect: “It would depend on how the annuity was structured.”

— Slightly more than half of respondents said they would not consider the plan, writing: “Too many fees associated with annuities” and “Can get better long-term returns with 100% equities.”

— Another noted, “I'd rather get an annuity outside of a retirement plan where I can better control the investments. Annuities can be very expensive in fees as well as not accurately tracking indices. It's critically important to purchase the correct annuity when buying annuities.”

See you next time!

That's it for today on We Study Markets!

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