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The Weekly Track golden-week

- The Weekly Track – Golden Week by Bob Savage
http://track.com/articles/the-weekly-track-golden-week/

Spring is in full force – its May, earnings for 1Q are in double-digits, the US President is pushing for 15% corporate tax rate, the US and China are working together on North Korea, Europe is growing faster and inflation is up. Emerging Markets are the darling of investors with capital flows positive and outlooks robust for growth in most places. And yet, this is the time of year when many become bearish – golden week – when Japan is on holiday, May Day when the world celebrates Labor Day and the nascent socialist movements that shook the 20th century, and its when equity markets hear the usual adage of “sell in May and go away.” Since 1950, the S&P 500 has had an average return of only 0.4 percent during the May-to-October period, compared with an average gain of 7.4 percent during the November-to-April period. This model requires some thought – and many have tweaked it to make it fit the data which isn’t as much as you would like – so the adding of more
rules – like ignoring the last 2 years of a President’s Term – will only make this more suspect. The larger issue for trading markets rests in the distinction between fundamentals and models, where the central bankers continue to exert extreme control of financials via negative rates and QE – forcing risk to move from cash to equities. How this all plays out will be important and likely to heat up significantly in May given the political landscape – French final round, UK election in June 8, US budget and healthcare and trade policies, ongoing issues with Syria and North Korea and doubts about global growth going into the end of 2Q with US weakness potentially hitting China, then other EM and casting the present mood as euphoric.