'Sell in May and go away' is in play this year amid inflation risks, market analyst says

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The adage “sell in May and go away” will likely apply to this year, money manager Mark Yusko says.

After “an unbelievable Q1 in just about everything that could be priced” including lumber and home prices, “we've gotten over-ebullient,” the CEO, chief investment officer and founder of Morgan Creek Capital Management told CNBC's “ETF Edge” on Monday.

The gains in commodities such as lumber, copper and crude oil could boost inflation in the second quarter, Yusko warned.

“I think the inflation numbers are going to spook people a lot,” he said. “If you think about the reason ‘sell in May and go away' exists, if you hold from May till October, you usually lose a little bit of money. You make all your money in a normal year on the tail ends on the other sides.”

Higher interest rates or capital gains taxes could “exacerbate the problem” and accelerate the rotation out of growth stocks and into value names, he said.

“There will be places to hide, but generally speaking, I think the markets will be pretty volatile through the summer and into the fall and you're just better off to raise some cash, kind of sit it out and then buy some things on sale in the fall,” Yusko said.

While rates are stable, both growth and value-oriented stocks stand to benefit, Steve Grasso, managing director of institutional sales at Stuart Frankel, said in the same “ETF Edge” interview.

“We're almost in a Goldilocks environment,” said Grasso, also a CNBC contributor. “Everyone is looking for rates to spike higher and maybe they will eventually, but you have [Fed] Chair [Jerome] Powell sitting on rates. You have the 10-year just sort of sitting out there in this sweet spot where growth and value can actually perform.”

Grasso had his eye on the homebuilders stocks, many of which have seen substantial double-digit moves year to date.

“I do think that the homebuilders will move sideways to lower because they are so domestic-facing,” Grasso said.

Commodity price increases “are fairly concerning” to ETF Trends CEO Tom Lydon, he said in the same “ETF Edge” interview.

“This is the first time in … almost 20 years where we've started to see these types of spikes,” Lydon said.

He flagged two actively managed ETFs investors could use to play the move: Direxion's Auspice Broad Commodity Strategy ETF (COM) and Invesco's Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC).

COM uses technical strategies to invest in various commodities. It is up nearly 17% year to date and is currently long copper, silver, corn, cotton, soybeans, sugar, wheat, crude oil, gasoline and heating oil. Its only flat positions are gold and natural gas.

PDBC, the largest commodity ETF by assets, has its largest positions in crude oil, gasoline, heating oil, aluminum and copper. That fund hit highs not seen since 2018 on Wednesday.

The key thing for investors to keep in mind is that inflation risks aren't going away anytime soon, Lydon said.

“We are surveying advisors every week, and since last fall, they're really concerned about inflation, especially as we start to see rates creep up a bit,” the CEO said.

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