LCG: Sell in May & go away?

LCG: Sell in May & go away?

May 4, 2020

Equity
Aandelenkoersen

Naturally, shares are down for a second day - and it’s May - so of course the question is ‘Sell in May and go away?’ There’s a logic to it this year. We’re headed into a recession, likely a depression. Markets have recouped about a third if you’re in Europe, a half in you’re in the States from the March sell-off. The risk to reward of holding on for further gains is a lot worse than a month ago.

Trade war

Having forgotten about the trade war since last year, it’s all come flooding back for investors. US President Trump explicitly mentioned tariffs as a preferred way to extract money out of China as compensation for their role in the coronavirus pandemic. Investors again face the difficult job of predicting Trump’s next action on trade. Whether deserved or not, there is clearly a strong political motivation to ramp up blame on China in the US. The political calculus may well be that it is worth giving up the small economic benefit of Chinese agricultural purchases etc (that might not happen anyway) to have a scapegoat for November’s election.

Buffet not buying

When the oracle speaks, markets listen. Airlines including EasyJet are leading the losses on Monday. Warren Buffet revealed he had sold all his airline shares, saying “there are too many planes” and that he was “wrong” to buy the shares. The big players / former national carriers (Air France / Iberia) are getting state aid but as travel restrictions persist many budget airlines may need to go bust. Unfortunately capitalism is disappearing for airlines and governments are picking the winners.

Shares

Shares are lower on the FTSE 100 with the index down around 0.2% by lunchtime. The Euro Stoxx 50 is lower by 3%, playing catchup since some European markets were closed Friday. Shopping centre operator Unibail-Rodamco-Westfield seeing the heaviest losses, down 9%. The Hang Seng took the brunt of selling in Asia given that markets in Japan and China are closed for holidays.

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