HX Weekly: May 26 - May 30, 2025

Hello reader, welcome to the latest issue of HX Weekly!

Each Friday, we bring you a new edition of HX Weekly that includes three distinct sections.

In the first section, Thoughts on the Market, we'll offer insights into current economic and market news.

In the second section, HX Daily Redux, we'll revisit investing concepts, tactics, and more from past issues of HX Daily.

And in the third section, Market Wizard’s Wisdom, we’ll share thoughts, quotes, and theories from the greatest investing minds of all time.

Now, let's dive in!

I: Thoughts on the Market – How to Navigate Exogenous Events as an Investor

Markets have been shaky lately, and if you’re feeling uncertain, you’re not alone.

From surprise political moves to global financial shocks, “exogenous events” can catch everyone off guard.

The good news? You don’t need to predict the future to protect your investments.

Before we address how to deal with these types of events, let’s define them and walk through some examples.

In the investing world, an “exogenous event” refers to a sudden, unexpected event that starts outside the financial system or markets but has a big impact on them.

These events are external to the normal function of markets and are not caused by economic or financial fundamentals. Even so, they can still influence investor behavior, asset prices, and market performance.

Common types of exogenous events include geopolitical conflicts, natural disasters, government policy changes and health crises.

But why are we even talking about exogenous events and why do they matter to us as investors?

They matter because these events are shocks that are not priced in. They can catch markets off guard and create short-term problems or even long-term changes.

Here are a few historical examples of these types of events.

The 9/11 terrorist attacks in 2001 caused the U.S. stock markets to close for four days. When they reopened, the DOW dropped by 680 points (-7.1%) in a single day. The airline, insurance, travel and defense sectors were dramatically impacted.

In 2011, an earthquake in Japan resulted in a Tsunami that caused the Fukushima nuclear disaster. Japan’s Nikkei index fell sharply in the days after. Longer-term, energy markets in many countries shifted away from nuclear energy to fossil fuels based on nuclear fears.

During the Covid-19 pandemic in 2020, global stock markets crashed due to economic lockdowns, supply chain issues, and uncertainty. While government stimulus and central bank actions helped markets recover rapidly, they led to widespread inflation that we’re still battling with in 2025.

Ok, but what are we writing about this today?

Well, as we write this on Thursday May 29, the markets are grappling with an exogenous event that happened last night!

That event being the U.S. Court of International Trade blocking President Trump’s “Liberation Day” tariffs.

Nobody had this on their agenda going into the market close yesterday. Everyone was busy waiting for Nvidia’s earnings report.

Yet, out of nowhere, the court issued its ruling sometime after 7 p.m. (EDT).

The news shocked everybody and drove market futures sharply higher in after-hours trading.

In the blink of an eye, that announcement changed the reality of the investing world. This is a textbook example of an “exogenous event”.

Now, we have no idea what the outcome of this news will be. And anybody that does is full of it.

That said, we do have a gameplan for how we investors can navigate this event and others like it in the future.

And here it is…

First, and most importantly, don’t freak out and abandon your plan!

Investing works best when you give it time. Panic-selling or trying to guess when to jump in or out of the market usually does more harm than good. Markets recover—often faster than you’d think.

The key is to stay calm, stay invested, and avoid making big emotional decisions. Don’t try to outsmart the market with gut reactions or trendy plays.

Focus on the basics, be patient, and your future self will thank you.

Second, it’s also important to keep a bit of cash on the side. Remember, “cash is king”!

Think of it as your financial safety net. If something bad happens—job loss, a big market drop—you won’t be forced to sell your long-term investments at a bad time.

Plus, having cash ready gives you a chance to grab good opportunities when prices dip.

Look, the bottom line is, you can’t predict exogenous events, but you can prepare for them.

Stay committed to your plan with a little cash on the side. The best defense is a solid plan plus the discipline to stick to your guns when others panic.

Plan the trade, trade the plan…

II: HX Daily Redux – Sell in May and Go Away? – It Depends

Today, we’ll revisit an HX Daily post from May 2024 titled "Sell in May and Go Away? It Depends.”

"Sell in May and go away" is a well-known stock market adage and investment strategy based on the historical tendency for stocks to underperform during the six-month period from May to October, compared to the November to April period. 

We thought it would be fun to revisit this piece as we near the end of May and the start of summer. Enjoy!

We are almost done with the month of May, but we are sure you have heard the following Wall Street saying no less than a hundred times…

“Sell in May and go away.”

It is a prevalent view and also happens to rhyme, so writers like to use it!

Is it true?

Historically, there is some decent data to back up this view.

In the last 80 years, the S&P 500 has gone up on average +6.9% in the six months starting in November (to April). It has also been up 76% of the time or slightly better than the average for any given six months.

However, the six months from May 1 to the end of October has shown an average return of only +1.7% or far less than the previous period. The success rate of 66% is also slightly lower.

From the data, it is true that, on "average," this is a period where stocks as a whole underperform.

Why does this happen?

We have written about the concept of "seasonality" several times in the past. This idea is that particular times of year can affect stock market performance.

Our view is that there ARE material seasonal patterns for the market. Like technical analysis, though, only a few powerful ones really count.

The most powerful of those is stock market strength into year-end.

Although there is no real logical reason, many professional money managers are still paid on their calendar year returns. This means their performance for the entire year ended December 31 plays a significant role in their compensation.

If you take a step back, the structure doesn't make any sense but is well-established.

This means many managers are highly motivated to push the market higher into year-end. Combined with the holidays at year-end, there is a pronounced and statistically significant bias for stocks to move higher in the last few months of the year.

Much more complicated – but also significant – is the fact that the stock market often does very poorly in September and October.

Here is a table showing stock market returns by month…

From the table, statistically, it is really about September, but there have also been some nasty Octobers. October has been the month where the stock market has bottomed the most.

Why these months in particular?

Our theory is that companies can no longer delay bringing down their expectations for the entire year once they get to this time of year. They have run out of time and any "tricks" they might have had to try to hit the numbers.

Combine it with everyone returning from vacation, and you have a volatile period.

It is interesting to note that May also tends to be a down month. That could be another reason folks like to use the saying.

How is this holding up in 2024?

Not so well. The stock market is having a great May. The S&P 500 is 5%, and the NASDAQ Composite is +8% so far…

This gets to our overall view on the saying “sell in May and go away” and our title above – IT DEPENDS.

In the case of this May, we entered into a stock market correction at the end of March after a ripping rally for six months straight. We called it out then (see our note here), but the market was due for a break.

It took that break in April but found a bottom after just a few weeks. This is because we are still in a strong BULL MARKET trend, and the economic environment is relatively stable.

In this case, the timing of the May stock market performance had everything about what was happening the months before. Perhaps that long rally that ended in March could have persisted another three weeks, and we would be looking at a nasty May.

The context of what is happening in the stock market matters the most in terms of the monthly performance.

What about the statistical evidence that we cited at the start?

We think that data has more to do with the powerful seasonal factors that power year-end and the start of a new year. It is less about "selling in May" and more about "buying in November."

We also think that the summer months see declining volume and market participation. This can increase stock market volatility, creating a more significant variability of returns.

We believe investors should ignore the idea of "sell in May".

Look at where the stock market is going into the month and the summer, and make your own decisions based on the current situation., not the 95-year "average" data.

Most importantly, we think investors should have a TRADING or INVESTING process that doesn't care. One that should be able to deal with the stock market volatility and still accomplish your goals!

III: Market Wizard’s Wisdom - Jim Simons

As we near the end of the month, we’d like to revisit a post “The Greatest Money Manager of All-Time” from last May honoring the late great Jim Simons.

While it’s been just over a year since his passing, his market wisdom is more important than ever.

We hope that you enjoy this piece about Mr. Simons…

May 10, 2024, we saw the passing of an investor we consider the most successful portfolio manager of all time.

His name was Jim Simons. He was a mathematician and hedge fund manager who founded the legendary hedge fund Renaissance Technologies.

There is much to be learned from his story and methods, and we will share those insights this week.

First, though – why do we consider him the “greatest money manager of all time"?

Let’s put some qualifying statements in there.

We use the word "money manager" here for someone who deploys capital in securities to generate a return. It is specific to financial instruments.

The word “investor” can be used for someone who buys companies or hard assets. This is not what Jim Simons did. He exclusively focused on the buying and selling of securities.

We consider him the "greatest" because he put together a twenty-year track record at his central fund (the Medallion fund) of a 66% annual return. 

He also did this with consistency. This was not a situation where they had one giant year and many mediocre ones. They consistently delivered strong double-digit returns.

The fund was closed to outside investors in 1993, and they capped assets at $10 billion. In this context, it is estimated that the fund produced over $100 billion in profits for its investors since 1988.

There are some enviable track records out there by very famous money managers. Those include Warren Buffett, George Soros, Peter Lynch, and Steve Cohen.

Many of those have made more aggregate money than Simons did with his company. None of them came even close to those kinds of annualized returns with this level of consistency with a substantial ($10 billion!) amount of capital.

If you were to get those great investors in a room and ask them whether Simons was the most outstanding "money manager" of all, they would likely agree.

What is fascinating about Simons is that his approach differed from that of all the other money managers.

Buffett is known for understanding “value,” buying, and holding great businesses for a long time. Soros is known for trading the movements in the global economy, Lynch for buying growth companies, and Cohen for a diverse group of trading strategies.

Simons? He did one and only one thing – MATH.

His background was originally as a mathematician. Math fascinated him from an early age, and he had quite an accomplished academic career. After graduating from the Massachusetts Institute of Technology (MIT) in just three years, he went to Berkeley and got his PhD by the time he was 23 years old.

From there, he went to teaching stints at MIT and Harvard and even worked at Princeton on breaking Russian codes during the Vietnam War.

Simons, though, developed an interest in the financial markets. He didn’t get his start until he was forty years old when he quit academia and opened an investment firm in a Long Island strip mall.

Initially, he traded like many others, looking at the news and fundamentals to assemble his hypothesis. He made some money, but he found the entire process incredibly stressful.

As a brilliant mathematician, he also began seeing clear patterns across the financial markets. These patterns repeated themselves and were not “random.” They were not perfectly predictable, but you certainly could identify probabilities.

The combination of his mathematics background, his view that there were clear patterns, and his desire to make money AND avoid stress led him to explore putting together automated trading systems.

He also had considerable insight into the fact that human psychology interfered with investment success. As he said, he wanted to build "A pure system without humans interfering."

Simons took an approach that focused on the data and what could be measured.

One common misperception is that this means he would be a "technical" trader. Looking at just a few variables, such as price and volume, like most technical analyses.

That is wrong. One of the key differentiators to Simons’ investment approach is that he looked at ALL the data!

Analyst expectations may have a poor track record of predicting what will happen in the future. Regardless, however, most investors still pay attention to them, and they factor into THEIR decision-making. Changes in them also factor into their reactions.

Simons' approach may or may not care about those analysts’ opinions. Still, they did care if there was an ability to identify a pattern in them that could produce a higher probability situation.

Another way to say this is that Simons took "opinions" out of the investing process and focused exclusively on the DATA.

They wanted to understand how and why something worked the way it did, but by far, their primary (99%?) focus was that it worked that way.

For us, this is the greatest lesson from Jim Simons' spectacular career, one that any trader or investor can use.

In building your process, focus on what DOES work. Sure, it is essential to understand the "how" and "why," but the "does" is the most critical part.

Don’t worry about the opinions of other investors, analysts, the media, etc. Find a process that works.

Once you identify what works, incorporate it into your plan. Constantly test and retest that plan to make sure that it is still working but then stick to it.

Much of our process is built on the same framework as Simons, and we think he would agree with our favorite motto…

“Plan the Trade and Trade the Plan.”

We hope that you’ve enjoyed this week’s issue of HX Weekly…

Do you have any thoughts, questions, or feedback? Tell us more in the comment section or at newsletters@hxresearch.net.