The most recent bearishness has come before May – the month in which pundits traditionally flood the headlines with “sell in May and go away”, while fund managers bring out the stats that say there’s little historical evidence to suggest such a phenomenon actually exists. This has possibly got investors a little twitchy ahead of time. Over the last few years, the supposed regular sell-off in equities has more often come in April, and so there’s evidence that more recent history might be repeating itself, despite what I said last week about April historically being a very bullish month for indices.
But regardless of the month, markets have been hit hard by a number of factors that have caused investors to hit the sell button hard. First, we saw the terrorist attacks in Boston – the kind of travesty that will always lead to some risk aversion in its aftermath. Secondly, the macro picture is looking a little worrisome following the release of the most recent Chinese GDP data, which took everyone by surprise and led to a bit of a shake out in the mining sector. There are a few people pinning their hopes on the chances that this was merely a blip due to the Chinese New Year getting in the way. But China isn’t the only concern either, as yesterday’s German ZEW surveys were also desperately poor. The Eurozone crisis remains far from over, as Slovenia looks like it could be the sixth domino to fall. Where does the bad news end?
What’s been most interesting about this bearishness, however, is the mass sell-off we’ve seen in gold. Usually considered a safe haven, the past few days have dispelled that theory pretty much outright, showing just how much risk and speculative money has been priced into the asset. Despite calls that the precious metal has entered a technical bear market, purely because it is now over 20 per cent below its all-time highs, there are plenty of gold bugs out there. Many of them have been waiting for such a correction so that they can get long with new positions. The battle between bulls and bears for this commodity is far from over, and it’s likely to remain very volatile in the days and weeks ahead. The same can be said for other markets, so traders may have to don the tin hats for a little while longer.
Angus Campbell is head of market analysis at Capital Spreads. You can follow him on Twitter @angusjmcampbell
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