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Sell in May and Go Away

Sell in May and Go Away

The topic of the week:

Tomorrow is May, and a phrase often used in the financial sector comes to mind: «Sell in May and go away.» This suggests that the financial markets tend to perform better in the period from November to the end of April than in the period from May to the end of October.

There are several versions of the origin of the phrase, but the most widespread dates back to the 18th century in England, specifically in the financial district of London. At that time, it became customary to recommend to English investors and high society to sell their shares in May and relax by enjoying the summer months outside the city. Originally the full phrase was «Sell in May and go away, come back on St. Leger’s Day,» referring to the important horse race that was held in London in mid-September. Over time, and with its popularization in the 20th century in the United States, the phrase was shortened.

To see if the meaning of the expression has any truth, we have analyzed both periods of the S&P 500, the main US stock market index, since 1928. In these 95 years, on 64 occasions the index has performed better in the period from November to the end of April than in the period from May to the end of October. Considering the European Euro Stoxx 50 index since its inception, it is also shown that 65% of the years the period from November to the end of April performs better.

If an investor had invested $1,000 in 1928 in the S&P 500, exclusively in the period from November to the end of April each year (as the phrase suggests), they would have achieved an approximate annualized return of 4.40% and reached a current valuation of their investment of $59,259. If another investor had done the opposite, being invested only in the months from May to the end of October, their approximate annualized return would be 1.34%, with a current valuation of their investment of $3,583.

In this way, the historical data gives some truth to this popular expression, although there is no definitive explanation of the causes that originate it. The main hypotheses are that buying and selling operations are reduced in the stock market in the summer months.

Finally, let’s consider a third investor who decides to keep his investment of $1,000 since 1928 to the present day, without selling his position momentarily at any time. Thanks to compound interest, their initial investment would have multiplied to an approximate figure of $211,113.

Prepared by Portocolom AV

Spotlight on markets:

The equity markets recovered some of the ground lost in previous sessions, with the Ibex 35 again standing out, closing in a maximum zone (11,154 points) after rising 4%, the same figure experienced by the American technological Nasdaq 100. For their part, the S&P 500 and the Euro Stoxx 50 rose around 1.75%. This positive tone was not without volatility, as the macro data released throughout the week helped to increase existing uncertainties, especially about the US economy. The positive point, and which could be behind the stock market gains, is the good corporate results that continue with the good trend of previous quarters despite some scares from important companies.

While in Europe the data released were in line with experts’ forecasts, in the US the first signs of economic weakness appeared, both the service and manufacturing PMIs, the GDP for March (+1.6% vs +2.5% estimated), or the data on consumer expectations from the University of Michigan, which fell below analysts’ forecasts. But they were not isolated data, since as far as the main concern of the FED remains inflation, its favorite indicator, the PCE, again stood above what was estimated both at general and core level, which could translate into stagflation (or lack of economic growth with high levels of inflation). Something that if it lasts too long in time, would be a serious setback for the global economy.

In addition, this week we will once again have important macroeconomic references at a global level: in China, PMI, CPI and GDP data are published in the euro zone and in the US we will know several key references: i) employment data (Jolts, ADP and unemployment rate), ii) consumer confidence of the «Conference Board», iii) ISM, PMI data and price evolution and iv) the FED meeting from which a message is expected that allows to understand when interest rates could start to fall.

The impact on the fixed income markets was reflected with sales in bonds and therefore with increases in yields since central banks could be forced to

further delay the start of the monetary policy easing. Ten-year bonds rose last week by an average of 6 basis points to leave yields at 4.67% in the US or 3.37% in Spain.

The commodities markets have maintained levels similar to those of the previous Friday, and their prices seem to have discounted, for the moment, the worst of possible scenarios. Gold corrected to $2,350/oz and Brent recovered to $88/bbl.

The quote:

And we say goodbye with the following quote from Henry Ford, American businessman and entrepreneur: «Getting together is a beginning. Keeping together is progress. Working together is success.»

Summary of the behavior of the main financial assets (29/4/2024)

This report does not provide personalized financial advice. It has been prepared independently of the particular financial circumstances and objectives of the people who receive it.

This document has been prepared by Portocolom Agencia de Valores S.A. for the purpose of providing general information as of the date of issuance of the report and is subject to change without notice. Portocolom Agencia de Valores S.A. assumes no obligation to communicate such changes or to update the content of this document. Neither this document nor its content constitutes an offer, invitation or solicitation to purchase or subscribe for securities or other instruments or to make or cancel investments, nor can it serve as the basis for any contract, commitment or decision of any kind.

The information contained in this report has been obtained from public sources considered reliable, and although reasonable care has been taken to ensure that the information contained in this document is not inaccurate or misleading at the time of its publication, we do not represent that it is accurate and complete and should not be relied upon as such. Portocolom Agencia de Valores S.A. assumes no responsibility for any loss, direct or indirect, that may result from the use of the information provided in this report. Past behavior of variables may not be a good indicator of their future performance.