Weighing up the market’s odds after St Leger day

 
Ross Westgate
FOR fans of horse racing, there was only one place to be this weekend: Doncaster. It was the annual running of the St Leger, a classic race given extra spice by the prospect of seeing Derby winner Camelot repeat the feat of the great Nijinsky and win flat racing's Triple Crown.

For investors of a certain hue, St Leger day also completes the phrase that starts "sell in May". It's the day when we're supposed to come back and re-engage with a stock market that's no longer affected by the vagaries of low summer volumes.

So what happened this year? Since 1 May the FTSE has risen just over 100 points, most of that in the last week, which provided gains of 1.75 per cent.

In the US the S&P 500 is up over 60 points or 4.45 per cent, but the standout has been equities in the poor afflicted Eurozone. In the same period the Euro Stoxx 50 has risen over 200 points, a near-11 per cent return.

Clearly selling was not the best decision but as Seven's Justin Urquhart Stewart points out it's worse than that. In the May to September period, "not only would you have lost the income, but also incurred the costs of selling and buying back and suffered the further losses of the bid-offer spreads. All in all, a complete waste of time, money and worry".

So what next? Equities and risk have been supported by the efforts of the world's central banks, led by the European Central Bank and Federal Reserve. In fact US stocks are in a juicy spot.

The Dow, S&P 500, Nasdaq Composite and Russell 2000 are all trading at multi-year highs. These are markets that have been favoured by many analysts over the course of the year.

But is it a green light through the rest of September? Swiss investor Marc Faber believes it may be time to lighten equity exposure now to buy at lower prices in the next six months.

This is a view that Charlie Diebel from Lloyds leans towards: "After a long run of positive news in terms of managing tail risk in Europe, the risk is growing that a disappointment trade could set in temporarily."

Charlie also points to the prospect of Spain maybe not asking for a bailout. It wouldn't mean a long term risk off phase, but perhaps the risk reward is more to risk off in the short term.

So it's another judgment call, stick or twist - but sometimes things can look too good. Camelot was the 2/5 odds on favourite to do something no horse had done since 1970. It lost by a length.

Ross Westgate co-hosts Worldwide Exchange daily from London and anchors Strictly Money on CNBC