Shifting out of stocks because valuations look too high has been a losing strategy in recent years and could prove even worse today, financial advisers say. Photo: Getty Images
Shifting out of stocks because valuations look too high has been a losing strategy in recent years and could prove even worse today, financial advisers say. Photo: Getty Images
Shifting out of stocks because valuations look too high has been a losing strategy in recent years and could prove even worse today, financial advisers say. Photo: Getty Images
Shifting out of stocks because valuations look too high has been a losing strategy in recent years and could prove even worse today, financial advisers say. Photo: Getty Images

Is this a good year to sell in May and go away?


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These are bewildering days to be an investor. Thrilling, in many respects, as commodities boom and the US S&P 500 tests all-time highs. Also unnerving as we live in such turbulent times.

So many of the financial rules that have governed our lives for decades have been torn up, and we don’t yet know where the pieces will land.

The age of austerity is over as the US and others pump out unprecedented levels of stimulus to fight off the economic impact of the Covid-19 pandemic.

Globalisation is going into reverse as the pandemic persuades countries to repatriate supply lines and build up key industries, notably pharmaceuticals.

Cryptocurrencies are rampant, inflation is a growing worry and market madness is rife, yet we don’t know when the coronavirus will be beaten as deaths spiral in India, Brazil and elsewhere.

Asset prices could climb higher, then come crashing down. Anything could happen.

You need to be brave to invest new money in this market, but so far that has been the way to bet as share prices keep climbing.

The latest US earnings season has been surprisingly strong, with tech titan Amazon reporting a 41 per cent rise in first quarter net sales to $108.5 billion, while Apple posted a 53.6 per cent rise in its fiscal second quarter revenue to $89.6bn.

Facebook also beat market expectations, with first quarter revenues leaping 48 per cent to $26.2bn. Electric car maker Tesla did even better, reporting a 74 per cent rise in first quarter revenues to $10.4bn.

Some will be tempted to take their profits and fix things out for a while, at least until the future looks a little clearer.

Could this be the year to abide by the hoary old investment mantra, “Sell in May and go away, don’t come back till St Leger Day”?

The saying dates back to the days when City of London stockbrokers abandoned their desks to enjoy the “summer season” of sporting and social events such as Wimbledon, the Henley Royal Regatta and Chelsea Flower Show, culminating in the St Leger horse race festival in September.

History suggests that stock markets are sluggish during summer, but perk up in the autumn and winter and culminate in an end-of-year Santa rally.

So, should you bid today’s crazy stock market a fond summer farewell? Chris Beauchamp, chief market analyst at online trading platform IG, sees signs of market fatigue as investors greet the latest US earnings updates with a surprising degree of apathy and “ennui”, “despite relentless upbeat estimates”.

Mr Beauchamp says investors have been reluctant to chase share prices even higher, after recent strong rallies. “This ebbing of momentum is the big problem facing markets right now.”

This ebbing of momentum is the big problem facing markets right now

Naeem Aslam, chief market analyst at AvaTrade, says while many are optimistic over the easing of coronavirus restrictions, this must be set against the worsening situation in India, which has weakened oil prices.

“Oil traders still believe that the coronavirus is going to have a profound influence on demand,” Mr Aslam adds.

Inflation is another concern, with US Treasury Secretary Janet Yellen spooking markets by warning that President Joe Biden's stimulus plans could trigger inflation, forcing the Fed to increase interest rates to stop the economy from overheating.

There are signs of rising inflation everywhere, especially in the commodity market, with the price of copper flying past $10,000 on high demand and dwindling inventories. Lumber has risen 280 per cent, as builders battle for supplies.

Bond yields are picking up in expectation, with 10-year US Treasuries yielding 1.61 per cent, roughly three times more than a year ago.

Steen Jakobsen, chief investment officer at Saxo Bank, expects both commodities and yields to rise, with 10-year Treasuries heading towards 2.5 per cent, which will “create havoc”.

“There is a recognition that inflation is structural and under-measured. Bottlenecks are getting worse and companies are repricing products higher,” he says.

Mr Jakobsen is “struggling to navigate the present macro environment” and pins buoyant share markets on fiscal stimulus rather than strong earnings.

He is also wary of market euphoria amid "crazy stories" like the valuation of a deli in New Jersey at more than $100 million, despite sales totalling just $36,000 in the past two years.

Fawad Razaqzada, market analyst at Think Markets, is more optimistic and says fears over monetary tightening may be overdone. “Even when the US Federal Reserve and other central banks start tightening, interest rates will still likely remain very low.”

Any near-term share price weakness will probably be a buying opportunity rather than a reason for the bears to pounce

Mr Razaqzada counts himself among the optimists for now, saying that “any near-term share price weakness will probably be a buying opportunity rather than a reason for the bears to pounce”.

So yes, this market is impossible to call but then isn’t every market? While there is some historical evidence that selling in May does work, you have to be brave to do it. Or naive.

While history suggests that June is the worst month for the stock market (and December the best), Adrian Lowcock, head of personal investing at Willis Owen, says data supporting the “Sell in May” theory is far from clear.

“The MSCI World fell in only 13 of the 36 summer periods from 1985 to 2020, rising the rest of the time,” Mr Lowcock says.

One danger is that you sell in May, only to buy your shares back at a high price in September as markets continue to rise. Another is that you won’t get any company dividends while out of the market, Mr Lowcock adds.

“When dividends are reinvested, then investors who sold in May would have triumphed just nine times in the 36 years to 2020, a poor strike rate of 25 per cent.”

Investors may regret missing out on this summer in particular, as lockdowns ease and bored consumers splurge their pent-up savings in restaurants, buy clothes, cinema tickets and maybe even holidays overseas.

Mr Lowcock says some corners of the market now look pricey, while others may now play catch up. “Cyclical and value stocks remain some way off their pre-Covid-19 levels and could benefit from further relief rallies.”

Jason Hollands, managing director of fund platform Bestinvest, says some summers have been volatile, but others have seen thumping returns. “People tend to remember periods of losses more than the times of gains.”

Selling up for the summer also results in unnecessary trading costs and potential tax charges, depleting your wealth, he adds.

This could be a particularly bad summer to sell as the post-Covid-19 rebound may still have a lot further to run, Mr Hollands says. “After a hugely challenging period, 2021 looks set to be a year of sharp recovery.”

Instead of trying to time the market, stay invested for the long term

Devesh Mamtani, chief market strategist at Century Financial, says shifting out of stocks because valuations look too high has been a losing strategy in recent years and could prove even worse today. "In the era of meme stocks, fear of missing out and Reddit-fuelled share trading insanity, there is scope for exponential gains."

He says annual inflation figures look “artificial” as the world was in lockdown a year ago. “Even if prices remain flat over the next few months, inflation will rise as the base comparison is lower.”

Ben Kumar, senior investment strategist at 7IM, says markets are volatile and impossible to call.

“Instead of trying to time the market, stay invested for the long term. The longer you give your money to grow, the more it should compound. The best answer is to do nothing.”

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The specs: 2018 Nissan 370Z Nismo
Price, base / as tested: Dh182,178
Engine: 3.7-litre V6
Power: 350hp @ 7,400rpm
Torque: 374Nm @ 5,200rpm
Transmission: Seven-speed automatic
​​​​​​​Fuel consumption, combined: 10.5L / 100km

Race 3

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Director: Remo D’Souza
Cast: Salman Khan, Anil Kapoor, Jacqueline Fernandez, Bobby Deol, Daisy Shah, Saqib Salem
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How to help

Send “thenational” to the following numbers or call the hotline on: 0502955999
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Young women have more “financial grit”, but fall behind on investing

In an October survey of young adults aged 16 to 25, Charles Schwab found young women are more driven to reach financial independence than young men (67 per cent versus. 58 per cent). They are more likely to take on extra work to make ends meet and see more value than men in creating a plan to achieve their financial goals. Yet, despite all these good ‘first’ measures, they are investing and saving less than young men – falling early into the financial gender gap.

While the women surveyed report spending 36 per cent less than men, they have far less savings than men ($1,267 versus $2,000) – a nearly 60 per cent difference.

In addition, twice as many young men as women say they would invest spare cash, and almost twice as many young men as women report having investment accounts (though most young adults do not invest at all). 

“Despite their good intentions, young women start to fall behind their male counterparts in savings and investing early on in life,” said Carrie Schwab-Pomerantz, senior vice president, Charles Schwab. “They start off showing a strong financial planning mindset, but there is still room for further education when it comes to managing their day-to-day finances.”

Ms Schwab-Pomerantz says parents should be conveying the same messages to boys and girls about money, but should tailor those conversations based on the individual and gender.

"Our study shows that while boys are spending more than girls, they also are saving more. Have open and honest conversations with your daughters about the wage and savings gap," she said. "Teach kids about the importance of investing – especially girls, who as we see in this study, aren’t investing as much. Part of being financially prepared is learning to make the most of your money, and that means investing early and consistently."

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Cultural fiesta

What: The Al Burda Festival
When: November 14 (from 10am)
Where: Warehouse421,  Abu Dhabi
The Al Burda Festival is a celebration of Islamic art and culture, featuring talks, performances and exhibitions. Organised by the Ministry of Culture and Knowledge Development, this one-day event opens with a session on the future of Islamic art. With this in mind, it is followed by a number of workshops and “masterclass” sessions in everything from calligraphy and typography to geometry and the origins of Islamic design. There will also be discussions on subjects including ‘Who is the Audience for Islamic Art?’ and ‘New Markets for Islamic Design.’ A live performance from Kuwaiti guitarist Yousif Yaseen should be one of the highlights of the day. 

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Match on Bein Sports

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MATCH INFO

Who: France v Italy
When: Friday, 11pm (UAE)
TV: BeIN Sports

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The bio

Favourite food: Japanese

Favourite car: Lamborghini

Favourite hobby: Football

Favourite quote: If your dreams don’t scare you, they are not big enough

Favourite country: UAE

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