by So with spring comes a second golden rule: “Sell in May and go”…
The question that worries the investment community every year at such a time is whether the stock market saying will be checked “Sell in May and walk away”…
According to former British cabinet minister and ex-Goldman Sachs executive Jim Oneil, during your “walk” through the markets, you will come to the conclusion that some data is useful and some is not.
For example, every January we remember the “five-day rule”, which says that if the cumulative return of the S&P 500 is positive over the first five days of the new year, the probability that the market will “close” in positive territory is greater than 80%.
So far, that “hypothetical” saying has worked pretty well, despite the inherent uncertainties of the world.
So, with spring comes a second golden rule: “Sell in May and go”.
Although less statistically accurate, as a saying goes, it has proven useful.
If you’re an investor – especially one who had a strong first quarter of 2023 – you might want to release your profits and stay away until the fall, because then there’s a good chance that markets will retreated in the intervening months. .
Of course, there is no objective reason on which any of these rules apply.
After all, stock markets historically tend to go up more than they go down.
Also, in general, futures products tend to outperform other financial markets, not to mention cash or fixed income securities.
Obviously, we should never let rules of thumb trump fundamentals.
However, there are times when the fundamentals can be quite murky, and there is good reason to believe that we are in such a period right now.
The fundamentals
Discover the latest set of monthly indexes from market managers in countries of global importance.
Not only do they show continued weakness in the manufacturing sector.
They also indicate that the global economy could technically experience a manufacturing recession.
At the same time, service indicators remain strong and in some cases are accelerating.
While some service-dependent economies (such as the UK and Greece) can weather the weakness that manufacturing indicators may show relatively well, they are unlikely to move in opposite directions for long.
Service industries will eventually stimulate other forms of activity or be swept away by their own dependencies on other industries.
As usual, China provides an important window into the global economy.
After ending its zero-Covid-19 policy late last year, China’s economy has had a strong start to 2023, and upcoming data will almost certainly show a strong one-year acceleration. on the other for many components of production and demand in April.
However, there are signs that the momentum of the recovery may have started to wane and various structural challenges are hampering activity.
Furthermore, inflation has not only receded, but has fallen to the point of raising concerns about deflation.
China is not alone either.
Other major Asian economies, such as Japan, are also experiencing subdued inflation, in stark contrast to the rise in prices seen in Western economies over the past year and a half.
Beyond Asia, inflation indicators, which investors tend to rely on most, are causing problems.
The elephant in the room”
“For example, recent producer price indices in the United States, as well as some consumer price data, have shown clear signs of a slowdown. and, as I mentioned earlier, world prices for many commodities are now much lower than they were a year ago.
Sooner or later, these developments should affect many producer and consumer prices.
But the latest data on structural inflation (excluding food and energy price volatility) in the United States, United Kingdom and European Union complicated the picture, revealing continued pressure on price.
And the University of Michigan’s five-year survey of inflation expectations recently showed a notable increase, to 3.2%, after falling to 2.9% in recent months,” Oneil reports.
Central bankers, no doubt, remain troubled by the situation.
Hopefully the latest evidence is just one exception.
But if this is not the case, the Federal Reserve Board (and therefore the other central banks) will be faced with a very problematic situation.
Interest rate outlook remains “the elephant in the room”.
Right now, the markets seem pretty confident that most central banks are either “finished” raising interest rates or are approaching the end of the current cycle.
Some don’t even expect rate cuts before the end of the year.
It could very well happen. but the inflation figures should improve a little.
On the other hand, if current market expectations are forced to change, equity market rallies will be harder to sustain unless there is a significant acceleration in earnings.
“Where does this take us before summer?
Overall, I suspect the inflation picture will continue to gradually improve.
But if the Michigan inflation expectations survey results don’t reverse, stock market investors will have good reason to worryconcludes Oneil.
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