You could easily argue this year – or even the last five years – have been like no other. This year, global markets have been whiplashed by the European Central Bank’s (ECB) QE program, the Swiss National Bank’s shock decision to remove the currency peg, and volatile swings in the oil price. That’s not to mention the bull run in the US dollar, which then petered out, only to be topped off by a number of vicious moves in the bond market, taking yields back to pre-QE levels. And a good dose of ECB verbal intervention, which took yields up again.
So what are the experts saying? Bob Iaccino, chief market strategist at Tethys Partners, recently told CNBC that “Sell in May” does not hold this year: “every old adage needs to be put away, because we are in an era that we haven’t seen before. We don’t know how it’s going to be when the Federal Reserve comes out of this record liquidity, money printing – we don’t know how any of the markets are going to react”. Iaccino, who is focused on US markets, added: “what you’re seeing is that the employment cost index is showing a dip and that lowers individuals earnings, so the retail sales numbers will be increasingly important. If you sell in May and go away, you may miss the next move... but you have to have a strong stomach to be involved”.
But not everyone agrees about staying invested in risky assets. According to Bank of America Merrill Lynch, you might be better off abiding by the old saying this year, as its analysts are predicting a “scary summer for markets”. Chief investment strategist Michael Hartnett writes that investors are “trapped in a twilight zone” – the uneasy transition from ultra-easy monetary policy to the gradual normalisation of policy, as the Fed prepares to hike rates. During this wobbly in-between phase, investors are in for a rocky ride, including “mediocre returns, volatile trading, correlation breakdowns and flash crashes”. In a nutshell: reduce risk during the summer, says Hartnett.
Whether you believe old market adages or not, with the ominous summer months approaching, the consensus suggests that volatility is here to stay – so buckle up.