“Sell in May and go away” advises the well-known City adage, which also suggests returning to the market after “St Leger Day”. This is the date in September when the horse race of that name is run and, traditionally, when the summer lull in trading is over. It bears little relevance in the modern era but any seasonal investors following the motto would at least been selling into a strong stockmarket this year with the FTSE 100 hitting a new record high of 7877 during the month.
The rise in the UK market came from two main sources. Large energy companies Shell and BP were boosted by the oil price surging to a four-year high, while weakness in the pound boosted the market more broadly as the predominance of overseas earners in the index were seen to be more profitable amidst a weaker local currency. UK equity funds of various types performed well.
The pound subsided as the Bank of England left interest rates on hold at 0.5 per cent, which was in sharp contrast to overwhelming expectations a few weeks beforehand that they would raise rates. The Bank trimmed its inflation forecasts and cut its growth outlook, but Governor Mark Carney said he expected the economy to recover speedily, despite signs of more cautious consumers.
Markets were again plagued by volatility, largely due to heightened political risk. The US administration’s approach to global trade, North Korea and Iran remains uncertain, while Italy’s new populist government added to market concerns. Yet these worries were ultimately outweighed by upbeat corporate earnings reports, accelerating global growth and subdued inflation.
There was a broad rally across most equity markets around the globe with American and Chinese indices the chief beneficiaries alongside Japan and Asia. The technology sector rebounded strongly from its recent wobble as Apple shares surged to a new all-time high; famed investor Warren Buffet revealed that his investment firm owns a bigger stake in the tech giant than was previously thought. Meanwhile, Facebook clawed back all the losses seen in the wake of the Cambridge Analytica scandal.
After a period of weakness, the US dollar has now started to rally, hitting a seven-month high in the last week of May. This is negative for US exporters and major US indices are still below the records set earlier this year, although the tech-heavy Nasdaq is approaching new highs. The small-cap Russell 2000 hit a new record, as domestic-focused equities tend to outperform in a period of dollar strength. Corporate earnings across the Atlantic have also been helped by President Trump’s tax cuts.
The prime exception to the positive mood was Europe where political instability in Italy hit markets, with bank stocks in the country bearing the brunt of a sell off. Populist parties with anti-euro and anti-EU policies tried to form a government following the election of a hung parliament. There was also waning sentiment in Latin America as it emerged that Argentina will start talks about a financing deal with the International Monetary Fund (IMF). The country has been suffering some financial turmoil, with interest rates recently hitting 40 per cent. President Mauricio Macri said IMF aid would "strengthen growth" and help avoid crises of the past.
Although investors should be aware past performance is not a reliable indicator of future results, here are the top and bottom ten Investment Association funds and sectors for May 2018 in full:
Top 10 funds:
Bottom 10 funds:
Top 10 sectors:
Bottom 10 sectors:
Past performance is not a reliable indicator of future returns and the price of shares and other investments, and the income derived from them, may fall as well as rise and the amount realised may be less than the original sum invested. Figures are shown on a per cent total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for May 2018: 30/04/2018 to 31/05/2018. Onshore and retail open-ended funds only.
This article is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in collectives should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and/or Prospectus. If you are unsure of the suitability of your investment please seek professional advice.