The old trader’s adage: “Sell in May and go away”, looks to have been bang on the money this year. The FTSE100 sat at 6,871 on 30th May and by the time Summer had officially ended, had fallen to 6,819 by 1st September. This seems to have been corroborated by the IMA Sectors: UK All Companies and UK Smaller Companies, whose returns during this 3 month period were 0% and -1.3% respectively.
Ironically, it wasn’t until I was thinking of writing this article on Thursday 4th September that the FTSE100 briefly pushed through 6,900 points; more like an Autumn of 69.
I think most people in financial circles recognise the fact that this is simply an old saying which seems to have endured the many generations of traders and that there is not much science being applied. Indeed, if we look towards the IMA Sector for China & Greater China, you would be kicking yourself all the way round Kowloon Harbour had you sold everything in May and then returned to trade at the beginning of September. All your trading floor buddies would be sitting there gleefully reminding you that your 3 month holiday would have come at the expense of a 10% market return during the precise period you decided to sojourn.
By comparison, the UK market has stumbled and jittered its way to somewhere slightly above 6,800 at the time of writing, caught in the headlights of where to run, following the very sudden realisation that Scottish independence could very well become reality by the end of next week.
How has the spectre of devolution manifested itself with the large financial institutions and what economic impact will that have on the wider economy in the UK as a whole? I can tell you that most of the largest fund houses and banking institutions are currently pulling billions of pounds of assets out of Scotland. Companies are seriously looking at relocating to the square mile. Our fragile recovery is in real danger of being snuffed out completely, which will see us being tipped back into recession by year end.
In a way, I’m pleased that the UK markets have not raced away at the same speed as the other global markets, because I think that these are starting to look overpriced. I have always looked at UK All Companies as a defensive move when I bring it into a portfolio, so I am confident there would be a softer landing if markets corrected now, than if I were to be invested more globally.
Markets really hate uncertainty, so the situation North of the border has done nothing to help, especially since opinion is so evenly divided. We can only hope if devolution happens next week, that markets start to respond positively on account of the knowledge becoming certain. The alternative scenario is that “It Cuts Like a Knife”!