Sell in May and go away!
Well, it’s May and I got some emails from analysts, Gurus and whatever, who were predicting a strong fall of the markets in May.
Those following what’s going on on the markets in the United States, China and so on, have seen that actually there has been a strong drop in the prices and these market analysts now come and say: “I predicted it, I said it!”.
They were obviously mostly guessing that something could happen because nobody could imagine that Mr. Trump would start his commercial war with China exactly in May and the problem is: if this news wouldn’t have been there, would the market have fallen in any case or would it be still heading to new highs?
Nobody can answer, of course, and sometimes markets wait for some news to start falling, this is true, it has always been so.
So this is not something that is totally wrong, but obviously that it would happen exactly in May, this is something that nobody could really predict.
These analysts might have relied on statistics or on this “Sell in May and go away”.
I was curious and I had the intention to have a look into this.
There were some statistics, and looking at the different results on different months for some indexes, what was misleading in the results is that there is no real evidence that you should sell in May, unless we sell at the end of May, because May itself has not been historically a disaster.
The only way we can get a negative May is if we take the Dow Jones index starting in 1900 and we sum up all the results.
In that case, there is a negative result in May, but there are worse months, so actually, May is not the real catastrophe.
It is true also that June is normally negative, so if you exit in May you avoid also being invested in June and as you can see on the SP500, for example, which has a shorter history than the Dow Jones, August is a bad month and this is true also especially in Europe, on the DAX index in this case.
So actually there is no real truth in the “Sell in May and go away”, there is some evidence in the history, but I would say that in this specific case, I don’t really think the analysts got the prediction of the market fall and they are only now recalling their guess because it happened, but never, as in this case, the right way to say it would probably be, knowing Mr. Trump: “Tweet in May and go away”.
That’s it guys, see you next week.
Ciao from Andrea Unger.