Sell in May and go away?

Market Summary

Most global stock market indexes enjoyed their best four-month start to a year since at least 1999, completing a strong bounce-back rally fuelled by a more accommodative Federal Reserve and upbeat economic prospects. “Sell in May and go away,” — a widely followed axiom, based on the average historical underperformance of stock markets in the six months starting from May to the end of October, compared against returns in the November-to-April stretch — on average has held true, but it’s had a dismal record over the past few years. However, much of the bad news, including downgrades to earnings, that would ordinarily weigh on markets from May to the end of October seem to have already been factored in by investors. The biggest cloud hanging over the world markets still is the unresolved trade war with China launched by US President Donald Trump. However, there is also a potential for upward momentum as China has initiated a number of stimulus measures to ease its economic slowdown.

Economic Outlook

After strong growth in 2017 and early 2018, global economic activity slowed notably in the second half of last year, reflecting a confluence of factors affecting major economies. China’s growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the United States. Disappointing data had led the IMF to cut its forecasts for global growth from 3.5 to 3.3% last month. One month later this forecast looks conservative after the three largest economies in the world – the EU, China, and the US – have published their first quarter estimates and all three have been stronger than expected. Conditions seem to have also eased as the US Federal Reserve signaled a more accommodative monetary policy stance recently.

Kaiser Partner’s View

We expect the remainder of the year 2019 to deliver further growth but on a lower level. Fiscal and monetary policy support is likely to continue and should support the markets. We do not expect the economy to falter as central banks incorporate market developments in policy settings and seem to stand ready to stabilize the market. For this reason, we do not see a recession coming in the US. However, we expect persisted elevated volatility in equity and fixed income markets. In summary, we will continue to align our portfolio for a late stage cycle environment with increased volatility and uncertainties coming from political risks. We stick to our positioning for now but are continuing to monitor the markets carefully.

Michael Stiefel

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