So with spring comes a second rule of thumb: “Sell in May and be gone”…
The question that concerns the investment community every year at that time is whether the stock market saying will come to pass. “Sell and go”…
According to former UK minister and former Goldman Sachs executive Jim Oneil, during his “tour” of the markets, he will have 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 in the first five days of the new year, the probability that the market will “close” in positive territory is greater than 80%.
So far, this “hypothetical” saying has worked quite well, despite the inherent uncertainties of the world.
So with spring comes a second rule of thumb: “Sell in May and be gone.”
Although less statistically precise, as said it has proved useful.
If you’re an investor, especially one who had a good first quarter of 2023, you might want to release your gains and stay on the sidelines until the fall, because then there’s a decent chance that the markets will pull back in the intervening months. .
Of course, there is no objective reason why any of these rules apply.
After all, historically stock markets tend to go up more than they go down.
Also, in general, forward products tend to outperform other financial markets, not to mention cash or fixed income.
Obviously, we should never allow general rules to override fundamentals.
However, there are times when fundamentals can be quite murky, and there are good reasons to believe that we are in that period at the moment.
Check out the latest round of monthly market managers indices in major countries globally.
They are not just showing continued weakness in the manufacturing sector.
They also indicate that the global economy may technically be experiencing 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 weakness in manufacturing indicators 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 offers an important window into the global economy.
After ending its zero covid-19 policy late last year, the Chinese economy is off to a good start for 2023, and upcoming data is sure to show strong year-on-year acceleration for many components of production and demand in April. .
However, there are signs that the momentum of the recovery may have begun to fade and that various structural challenges are hampering activity.
Furthermore, inflation has not only receded, but has fallen to the point of raising deflation concerns.
China is not alone either.
Other major Asian economies, such as Japan, are also experiencing mild inflation, in stark contrast to the rising price levels seen in Western economies over the past year and a half.
Looking beyond Asia, inflation indicators, which investors tend to trust more, are causing problems.
The elephant in the room
“For example, recent producer price indices in the United States, along with some consumer price data, have shown clear signs of a slowdown. And, as I mentioned earlier, the prices of many global commodities are now much lower than they were a year ago.
Sooner or later these developments should influence many producer and consumer prices.
But the latest data on core inflation (excluding volatile food and energy prices) in the US, UK and EU have complicated the picture, revealing continued pressure on prices.
And the five-year survey of inflation expectations from the University of Michigan recently showed a notable rise, to 3.2%, after falling to 2.9% in recent months,” reports Oneil.
Central bankers no doubt remain concerned about the situation.
One hopes that the most recent evidence is only an exception.
But if it isn’t, the Federal Reserve Board (and therefore other central banks) will be faced with a very problematic situation.
The interest rate outlook remains the “elephant in the room.”
At this point, markets seem pretty confident that most central banks are either “done” raising interest rates or are nearing the end of the current cycle.
Some don’t even expect rate cuts before the end of the year.
This very well could happen. but the inflation figures should improve a lot.
On the other hand, if current market expectations are forced to change, rallies in the stock market will be more difficult to sustain, unless there is a significant acceleration in earnings.
“Where does that leave us before summer?
Overall, I suspect that the inflation picture will gradually continue to improve.
But if the Michigan survey’s findings on inflation expectations are not reversed, stock investors will have good reason to worry» concludes Oneil.