A 10% dip or at least a pause could be looming for the S&P 500. Take refuge in these sectors, says veteran strategist

Legendary investor Warren Buffett told fans over the weekend that the US economy is “red hot,” suggesting that money in an index fund is better served than choosing stocks. That advice comes as investors face what could be a seasonally weak period for stocks. The adage of “sell in May and get out” dictates that between now and October is typically a less profitable and bumpier time for stocks, in part as the weather warms and large traders spend more time on vacation, leaving back to junior traders and opening the door to volatility.

A pause in stocks doesn’t seem like a crazy idea at the moment. Hovering near record highs, the S&P 500 SPX has gained -0.72% for three consecutive months and the economy is recovering strongly from the pandemic. And the pent-up demand for a summer vacation and lots of vaccinations in the US, at least, justifies leaving for a while. But instead of selling, “curbing your enthusiasm” may be better advice to take for the next six months, says our call of the day from Stifel’s head of institutional capital strategy, Barry Bannister. He predicts the S&P 500 is headed for a 5-10% decline over the next several months. He bases that on the “usual seasonality math” that predicted a 26% gain from November to April 30, 2021, while we got a 28% gain. Others have been stepping in on seasonality, like UBS and LPL Financial, who are urging investors to stay. Here is the Bannister table:

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The following graph from Bannister shows how His following graph shows this: “A lump sum of $ 10,000 (with no additional contributions) invested in 1950 in the S&P 500 has produced a cumulative return in the 6 months from November 1 to April 30 of following year 38 times larger than if it were invested only in the previous 6 months from May 1 to October 31 “.

And if things go the way Bannister expects, he said investors should get investors to be selective about sectors, says Bannister. “If May through October 2021 is seasonally weak, we note that the S&P 500 defensive (commodities, healthcare, utilities, telecom services) generally outperform cyclicals (note that cyclicals include technology) in the same period, although generally with diminishing returns. The seasonal strength of the S&P 500 during the six months from November 1, 2020 also appears to have anticipated returns, decreasing from May to October 2021, ”he said.

Bannister says that if you’re wrong, the ‘only path to the bubble’ is a much higher price / earnings ratio based on repression of performance. ‘And as for those who’ see post-COVID-19 as a meme ‘ Roaring 1920s’ “, he noted that the market P / E has already reached the trend-adjusted level of October 1928, which occurred only 12 months before the October 1929 crash.

Ethereum is red hot and more data is coming in. Taking your eyes off the screens this summer may be less advisable if you like cryptocurrencies. Ethereum ETHUSD, + 6.55% has passed $ 3,000 for the first time, with gains topping bitcoin BTCUSD, + 3.18% so far this year. Berkshire Hathaway Vice President Charlie Munger had nothing good to say about cryptocurrencies at Saturday’s shareholders meeting. Elsewhere, US ES00 stock futures, + 0.57% are rising, led by Dow YM00 futures, + 0.66%, with Nasdaq NQ00 futures, + 0.31% modestly up. European stocks SXXP, + 0.56% are rising, with London UKX, + 0.12% off holidays. Several Asian markets were closed, but those that were open fell as investors worried about rising COVID-19 cases and low vaccination rates. President Joe Biden‘s huge spending plan will not trigger inflation, Treasury Secretary Janet Yellen argued on NBC’s “Meet the Press” on Sunday. Federal Reserve Chairman Jerome Powell will speak at the Fair Economy conference on Monday, discussing community development. Markit’s April Manufacturing Purchasing Managers Index is available, with the Institute for Supply Management’s April Manufacturing Index and construction spending also ahead, along with auto sales. Another busy week for earnings begins with home DIY retailer Lowe’s LOW, -1.10%, makeup giant Estee Lauder EL, -0.93% and chip supply group ON Semiconductor ON, expected to be -4.88. % report before the bell on Monday. Shares of Tesla TSLA, + 4.79% are moving south after a German trade magazine said production at the electric car maker’s new gigafactory outside Berlin faces another six-month delay. . Multinational conglomerate Berkshire Hathaway BRK.A, -1.29% BRKB, + 0.63% said it switched to a first-quarter profit on equity gains and better results from its insurance business. Among the highlights of Saturday’s shareholders meeting, Chairman and CEO Warren Buffett defended the sale of airlines, discussed a “casino-like” stock market, and warned of special-purpose takeover companies. telecommunications Verizon VZ, + 0.82% is close to a deal to sell its Internet units of Yahoo and AOL to the private equity group Apollo Global Management APO, -0.29%, reported the New York Times and other media, citing sources. Epic Games and Apple AAPL, -1.51% will meet in court on Monday. The maker of the popular online game Fortnite has accused the iPhone maker of abusing its App Store for anti-competitive purposes. Read: If you missed the SPAC craze, you’re probably better off. The EU is urging that restrictions on non-essential travel to the region by vaccinated foreign nationals who come from a country that has a good epidemiological situation be lifted. Random readings Manchester United football fans stormed onto the pitch on Sunday to protest against the club’s owners, who had backed the failed Super League. Need to Know starts early and updates until the opening bell, but sign up here to receive it once in your email box. The emailed version will ship at approximately 7:30 am ET. Do you want more for the next day? Sign up for The Barron’s Daily, a morning investor briefing, featuring exclusive commentary from the Barron’s and MarketWatch writers.