by Peter Switzer
I warned about it before May and here we are after three weeks of sell-offs, so will the old market or investing cliché – ‘sell in May and go away’ – hold?
On the local front, we opened on 2 May at 4826.30 and finished Friday at 4732.2. That’s a 94.1-point fall or a slide of 1.9 per cent. It’s nothing too scary but for the calendar year we started at 4758.3 and that means we are only in just positive territory, up a measly 26.1 points!
Of course, the Aussie dollar going to 110 US cents hasn’t helped our stock market’s cause but we can also see there’s no big reason for investors to sell-off. This reflects the fact that we’re all less scared about the global economy and state of international banks as well as governments.
However, there’s still a nagging doubt and that’s why share buying has been measured. But on the good side, there’s no big commitment to dumping stock. It’s a wait-and-see game where US economic growth and European debt are the big question marks.
By the way, the Dow is up 8.07 per cent for the year so far while the S&P 500 index has put on 6.01 per cent.
Remember, Goldman Sachs’ David Kostin predicted growth of four per cent for the US and a market surge of 25 per cent. This looks less likely but a positive finish is a big chance.
The fear index
Showing that a bit of nervousness is creeping in in May, the VIX or fear index, has gone up over two per cent last week to 17.43 and so a negative end to May wouldn’t surprise – though nothing dramatic.
Volatility being pretty weak is another positive sign that a big sell-off is not on the cards.
For the next few weeks and possibly months, Euro debt concerns and the pace of US economic growth will dominate investors’ minds and these are likely to keep a cap on market rises.
Home and abroad
In the US this week, I will be looking at the Chicago Fed National Activity Index, new home sales, the FDIC report on Q1 bank earnings, mortgage applications, durable goods orders, corporate profits, personal income and spending, consumer sentiment, and pending home sales.
In Australia, we get business investment figures on Tuesday and these will be important. If they’re lower than expected, it might calm the Reserve Bank down which is worried about too much investment in the pipeline, which could cause inflation.
Have a great week but don’t expect any great days on the market for some time. The time investors stay away from the market in the US is from May to August and of course there’s a history of sell-offs in September and October.
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Published on: Monday, May 23, 2011
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