During the first week of May every year, the maxim, “Sell in May and Go Away,” gets taken out, dusted off and powered up as a reason to sell stocks. The rhyme is more than just a catchy urban legend: June, July, August and September have historically been the weakest months of the year for the S&P 500 Index.

Yet even if seasons trigger certain events, when the snow falls in Minnesota in May, Midwesterners need to throw on their winter gear and roll out snowblowers, not lawnmowers.

Consider this encouraging research: The S&P 500 has been rallying for six months in a row, which has happened 48 times since 1950. Following these six-month winning streaks, stocks have historically continued rising. Sixty percent of the time, the S&P 500 climbed 0.79 percent over the next month; 84 percent of the time, stocks increased 3.50 percent, 7.77 percent and 11.77 percent the next three, six and 12 months following the streak.

click to enlarge

In addition, 165,000 jobs were added to payrolls in April, helping the unemployment rate fall to 7.5 percent. This is the lowest level since December 2008.

The news comes days after the Federal Reserve stamped its approval on another month of bond buying, with the added bonus of Ben Bernanke stating that the Fed is “prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation.”

If that’s not enough to validate a continuing bull market, consider the European Central Bank’s exceptional move this week. Mario Draghi cut key interest rates to 0.5 percent, the first time in 10 months, following weaker manufacturing data out of top four largest economies in the eurozone. Germany, France, Italy and Spain all experienced manufacturing contractions.

Our portfolio manager of the Emerging Europe Fund, Tim Steinle, described the ECB’s motivation this way: It’s one thing to punish the periphery; it’s another to weaken the core. 

The S&P 500 has climbed an amazing 12.74 percent through April 30, so if you’re eager to do some investment spring cleaning, you might want to consider areas that have underperformed. For example, take a look at the year-to-date returns by sector, which reveal an interesting pattern. Health care, utilities, consumer staples and consumer discretionary have all climbed more than 15 percent, much more than the market. Meanwhile, companies in the materials, energy and industrials sectors have lagged the overall index.

click to enlarge

In recent days, an inflection point seems to have occurred, with these weaker areas of the market gaining strength. We wrote in the Investor Alert last week that cyclical stocks, including health care, consumer staples, utilities and telecommunication, have been lagging the remaining sectors. From the beginning of the earnings season on April 24 through May 3, energy, industrial and materials stocks are nearly the best performing areas of the market.

click to enlarge

We believe expectations might have become too lofty for defensive companies and too gloomy for cyclical stocks, so as perceptions toward global growth improve, it won’t take much for energy, industrials and materials to take off.

Also Read: A Case for Owning Commodities When No One Else Is

Spring Clean Your Treasury Portfolio Too
With the Fed’s insistence to keep interest rates low, real interest rates remain negative for investors. For example, a 90-day T-bill yields 0.06 percent and 2-year Treasury yields 0.23 percent, but inflation burns off 1.5 percent.

It’s interesting to note that while low interest rates help keep the government’s debt payments low, these rates hurt seniors living on a fixed income. My friend, Terry Savage writes this week,

“Savers are the big losers in this rigged game. And most domestic savers are seniors and those approaching retirement, who planned to live on the income generated by their savings.  Today, that’s simply not possible – unless they are willing to take on a lot more risk.”

Here’s an alternative that offers both a shorter duration and higher yields, without a lot of risk: The Near-Term Tax Free Fund (NEARX) has a tax-equivalent yield of 1.51 percent as of March 31, 2013. Its 30-day SEC yield is 0.81 percent. These yields are significantly higher than a 2-year Treasury. Learn more today.

The important idea for investors is to adjust to the current conditions. Regardless of the month, if the thermostat shows frigid temperatures, dress accordingly. Likewise for when it’s hot in the summer. What’s important is to stay tuned and make sure your portfolio is dressed accordingly.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Emerging Europe Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries.  The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well.  Each tax free fund may invest up to 20% of its assets in securities that pay taxable interest.  Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes.  Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

Global investors had to muster the courage to keep calm as news of Cyprus’ proposed partial theft of all bank deposits took Wall Street by surprise, closed the country’s banks and drove the price of gold higher.

The thoughtless idea was intended to capture a portion of the $31 billion in bank assets held by Russians. According to the Financial Times, Cyprus has developed a “well-earned reputation for being a haven for dirty money from Russia.”

Although Cyprus’ government came to its senses and blocked the proposed seizure, the damage has been done. To many people around the world, raising income taxes may be one thing, but changing the rules to steal hard-earned savings from all citizens rattles their confidence. What Adrian Ash of BullionVault says is “most amazing” about this situation is that “small savers are no longer sacred.”

It’s remarkable to see the response from Cypriots, as they protested in the streets, with “NO” stamped on their palms, demanding the government take its hands off their money. In the photo, you can see their pushback to sanity.

How did this tiny island make it into the European Union (EU) in the first place? The Financial Times gave an insightful background:

“Many EU leaders had been deeply reluctant to admit Cyprus into the union in 2004, without a peace settlement that reunified the island. But Greece had threatened to veto the entire enlargement of the EU—blocking Poland, the Czech Republic and the rest—unless Cyprus was admitted. Reluctantly, EU leaders succumbed to this act of blackmail.”

Five years later, we are seeing the fallout of Cyprus due to Greece’s financial woes. Many accuse Greece of cooking the books to get into the EU, and then the country proceeded to blackmail the EU at the expense of other European countries.

Crooks get punished, but what about others who unfairly change the rules or break them? Think back to the anger generated by the Ponzi scheme run by Bernie Madoff, who lost $20 billion in cash. In addition, $65 billion in paper wealth vanished. He’s serving 150 years in prison, his son committed suicide, and he’ll forever be known as a thief and a rat.

In Gold We Trust
Since the global financial crisis began, there’s been a rash of poor economic decisions from socialist policymakers scrambling to bring in more revenue to cover their overspending. Rather than streamline regulations to facilitate trade and flow of funds or cut back on welfare programs, they’d rather maintain the status quo and increase taxes.

In Greece, tough cost-cutting austerity measures were shot down after organized unionized workers were rioting in the streets. France’s socialist president, Francois Hollande, has been trying unsuccessfully to increase the top income tax rate to 75 percent in an attempt to “squeeze fat cats and hit the mega-rich, making them bear the brunt of ‘sacrifices’ needed to fix public finances,” according to The Guardian last summer.

In Hungary and Italy, we have seen the unintended consequences of envy policies after implementing a financial transaction tax.

These types of “envy policies” that would be frowned upon by Moses on Mount Sinai aren’t only happening across the Atlantic. Recently, Gene Epstein from Barron’s compared the U.S. debt situation to that of Greece’s. He writes that national debt could “easily reach 153 percent of economic output by 2035” and unemployment could climb as high as 20 percent, but the solution doesn’t lie in “asking the rich to pay a little more.” He says,

“Barron's calculates that immediately increasing the marginal tax rate to 50% on the top 1% of the country's earners would bring in $500 billion over the next 10 years. This would barely dent the country's debt load, which would then be $20 trillion, and do little to forestall a financial crisis.”

I believe poorly thought out government policies hurt the formation of capital and destroy people’s trust in paper money. Leaders may have good intentions, but some of their actions show disrespect for private property and individualism.

This only reemphasizes gold as an important asset class.

It may be apt timing for investors to become reacquainted with gold, as our oscillator chart shows that the yellow metal appears to be oversold. On a year-over-year basis, gold has fallen more than 2 standard deviations, an event that has rarely occurred over the past 10 years. As I’ve indicated before, following these extreme lows, gold has historically rallied.

It’s only an event like Cyprus to prompt you to make sure your portfolio has a modest weighting of 5 to 10 percent in gold and gold stocks.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. By clicking the links above, you will be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content. None of U.S. Global Investors Funds held any of the securities mentioned as of 12/31/12.

A few months ago, I talked about how a financial transactions tax can have significant unintended consequences. Using Hungary as an example, I said that when the government implemented a levy of 0.5 percent on banks’ assets, bank credit growth rates plummeted. As a result, Hungary’s household and corporate sector credit growth rates became anemic compared to other Eastern European countries.

Now it appears that Italy is going “Hungary” by introducing a financial transaction tax that became effective in March. For shares of Italian companies, investors are taxed an additional 0.12 percent of the value of the shares purchased in a regulated market or trading platform. For over-the-counter transactions, the tax is even more costly, at 0.22 percent, according to Reuters.

Since going into effect on March 1, trading in Italian stocks through desks of major banks has plummeted. According to the Financial Times, average daily trading volumes in March have dropped about 40 percent compared to the previous month. “This is the biggest fall in volumes on any major European exchange so far this year,” says the FT.

I believe this is a great example of how government policies are precursors to change. With a reduction in trading volumes, fewer buyers and sellers participate in the bid-and-ask process, and less competition can cause prices to languish.

With fewer buyers owning shares of public companies, investors’ portfolios are likely going to be deficient in growth assets. Take a look at Investment Company Institute data showing a decline in the percentage of households in the U.S. holding individual stocks in 2012 compared to 2002. In addition, Americans are less likely to own shares of their companies’ stock today compared to 10 years ago.

With less stock ownership, many of these U.S. investors likely missed out on the market’s tremendous rise over the last few years.

In March 2013, ICI issued a response to the financial transaction tax that’s been introduced in the U.S., saying, “A financial transaction tax is bad policy that substantially reduces the investment returns of fund investors and retirement savers. Whether introduced in the United States, Europe, or elsewhere, financial transaction taxes slow economic growth, drive away financial activity, and make markets less efficient.”

I believe leaders in Washington D.C. and around the world should be focused on policies that encourage individuals to invest rather than making it more onerous. I hope those considering similar financial transactions are taking note.