FYI | May 04 2016
By Peter Switzer, Switzer Super Report
[Note: This article was written on Monday – Ed]
This is a huge week economically and market-wise with a host of local and international factors bound to test out the old “sell in May” proposition.
And by week’s end you should be able to tell if you want to be a buyer or a seller of this stock market.
Believe it or not but some people only trade between November and April, getting out before May and the The American Economic Review in 2002, concluded: “Surprisingly, we found this inherited wisdom of ‘Sell in May’ to be true in 36 of 37 developed and emerging markets. Evidence shows that in the UK the seasonal effect has been noticeable since 1694.”
Marshall Gittler, Global Head of FX Strategy at IronFX Global, recently was reported on CNBC with this offering: “The Financial Analyst Journal in 2013 studied this [seasonality] effect in the period following that observed in the first paper and found that the phenomenon did indeed exist for 1998 to 2012.
"On average across markets and over time, stock returns are roughly 10 percentage points higher in November-April half-year periods than in May-October half-year periods," the paper concluded.
The personal education website pfsyn.com added to the May controversy with this: “Think about this: since 1950, from November 1 to May 1, the Dow Jones has not had a loss in 54 years out of 64 years. [3] That’s an 86% success rate.
“Also worth mentioning, of those ten down years, only three times was there a double digit loss: The stock market crash in 2008 (-12.4%), the OPEC oil embargo in 1973 (-12.5%), and the Cambodian invasion in 1970 (-14%). This would mean that without these unanticipated events, seasonality has not had a double digit percentage down year in the 1950 example.”
Okay, this might be a 14%-year when we go higher but what could work against it? Try these curve balls:
• The Budget and Moody’s response to it, which could hit our AAA-credit rating;
• Crazy central bank action from the USA to Japan to Europe;
• The Poms and their Brexit;
• The IMF and its tendency to mark down world economic growth;
• The cutthroats of OPEC and non-OPEC oil producers, who meet in Moscow in May;
• Economic readings that could spook the market;
• Earnings from companies that could spook the market; and
• Donald Trump!
This looks like a testy May, with the Dow Jones index near all-time highs of 17,809.73. It’s now at 17,773.64, so that’s testing material as well with profit-takers and short-sellers all out there and aware of stock market seasonality.
Smarties like Geoff Wilson of WAM are negative now but expect better news later in the year, so he might be a seasonal player too.
This week will be an interesting start to May, with Westpac and ANZ reporting a worse than expected rise in profit and ANZ, NAB and Macquarie reporting later in the week.
Tomorrow is not only Budget day but we have the Reserve Bank of Australia deciding on interest rates and there are plenty of cut predictions out there!
On top of these two big stories, we have home prices, building approvals, retail trade and international trade data out this week. Meanwhile, overseas, the China PMI for manufacturing, the US ISM reading for manufacturing, the ISM for the services sector and the jobs report.
A great week could send stocks up but a rough, disappointing one could get the ball rolling on an 86%-style May, where it’s wise to sell and go away and come back some time around November.
What am I doing? Watching! If I get stung by a May sell off, I’ll buy great companies at low prices like I did with Rio and BHP a few weeks back.
That said, there’s a lot to be said for being a six months trader, if you like thrill-seeking investing.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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