Sell in May and go away?
Is the old stock market adage more appropriate than ever this year? It would certainly appear so!
As the coronavirus crisis took hold and countries went into lockdown, the equity market plummeted. Investors were mesmerized as the swiftness of the decline was matched by its brutality – selling was indiscriminate and quality counted for little or nothing. Then, as if someone flicked a switch, prices rallied sharply. Losses were not totally recovered, but between one-third and two-thirds were recouped, depending on the investment. The market recovery took shape as forecasts for company earnings were being slashed, unemployment began to rise sharply, and economists worked out that the U.K. faced its worst recession for 300 years. So now that we’ve had a rally (and remember the market was not cheap before the sell-off began), with all of the risks skewed to the downside, why would you do anything other than be looking to sell?
There is no logical answer to that, but there is one small caveat and it takes the form of another old adage – ‘the market can remain irrational for longer than you can stay solvent’! In other words, the market can depart from the fundamentals for impressively long periods.