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Sell in May & go away
by Tony Butcher
Issue 4
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While May is approaching, it is not the time of year to start getting bullish (a belief that markets will rise) about the stock markets. A few factors are bringing economic uncertainty to the markets. With the French referendum on the EU constitution less than a month away, Chancellor Schroeder of Germany has been over to France to help Pres Chirac swing the voters back towards a Yes vote.

At the time of writing No were still the majority at around 51/49. This is creating a lot of economic uncertainty as the rhetoric starts to build. European Central Bank leader Jean Claude Trichet has said a NO vote from France would be damaging to the EU and many other have said the EU would become unworkable as a result.

There is a Stock market saying: “Sell in May and go away”. Historically the period from November to April has been the most profitable for stock market investors. In the US, for example, over the last fifty years the Dow Jones Industrial Average has added over ten times more points to the index in this period of the year than the summer months.

The Nov – Apr period this year had seen some very strong gains, around 9% at one point, but that has disappeared during April a month which ironically is historically a very good month for stock markets. The trend has started to take on a bearish (a belief that markets will fall) stance. When this is put in the context of Stock Market sayings and, coupled with the uncertainty of the French referendum, May could prove tough going for investors.

American Jobs data due in early May could provide the markets with some direction. However, inflation is still seen as the primary danger for the Federal Reserve and are likely to continue their policy of steadily raising interest rates.

German ministers are claiming their unemployment reforms could start seeing benefits in the summer months, but the economic problems in Germany will not be solved by September. So the outlook seems to suggest that you should let the trend be your friend and Sell in May and enjoy your Holidays.

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