While the US influence may be playing a big role in the continuation of this seasonal pattern in shares, the old saying in its full form of “sell in May and go away, buy again on St Leger’s Day” has its origins in the UK as St Leger’s Day is a UK horse race on the second Saturday in September suggesting that the seasonal pattern in shares dates back to the UK. In fact, it may have its origins in crop cycles with grain merchants having to sell their shares at the end of the northern summer to buy the summer crop (which depresses shares around August/September) and they then bought back in after they sold the crop on to mills. Of course, that’s not so relevant to today. So, the explanation discussed earlier explains why it likely persists.
There is no guarantee that seasonal patterns will always prevail. They can be overwhelmed when contrary fundamental influences are strong, so they don’t apply in all years. For example, while Decembers are on average strong months in the US and Australia that wasn’t the case last December and not all years see weakness in the May to October/November period. However, they nevertheless provide a reasonable guide to the monthly rhythm of markets that investors should ideally be aware of. In simplistic terms, around May (and July in Australia) is perhaps not the best time to be piling into shares and around September to November is not the best time to be selling them.
What about now?
For the year as a whole, we see shares doing okay. Valuations are okay helped in part by very low bond yields, global growth is expected to improve into the second half of the year and monetary and fiscal policy has become more supportive of markets all of which should support decent gains for share markets through 2019 as a whole.
However, from their December lows, shares – globally and in Australia – have run hard and fast and so are vulnerable to a short-term correction. Still soft global growth indicators and the latest flare-up regarding US and China trade could provide triggers.
President Trump’s latest threat to increase the tariff on $US200bn of imports from China from 10% to 25% (delayed from January) and his threat to look at taxing remaining imports from China too suggest that the latest round of US/China trade talks in China did not go as well as planned and looks aimed at putting pressure on China to resolve the talks. Ultimately, we remain of the view that there will be a resolution given the economic damage not doing so would cause, particularly ahead of Trump’s re-election bid next year (US presidents don’t get re-elected when unemployment is rising). But the latest threat adds to the risk of market weakness in the short term, particularly if China delays a trip to the US to continue the negotiations in response to Trump’s threat.
In Australia, uncertainty around the impact of various tax increases if there is a change of Government in the upcoming Federal election could cause short-term nervousness for the Australian share market.
Of course, long term investors should look through all this.
If you have any questions about this, please get in touch.
Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.