An old saying in the stock market is “Sell in May and Go Away”. This is because historically the market tends to fall during the summer months for reasons that are not altogether clear. Bearing in mind the transaction and tax costs involved in selling shares and buying them back later in the year, and the fact that like all supposedly reliable investment rules, it tends to be traded away by the anticipation of knowledgeable investors, I do not normally take any notice of this theory.
But I feel this year it might be a good idea to follow. Inflation is forecast to rise to over 10% and GDP forecasts are falling so we might even enter a recession later his year. There is doom and gloom all around with the war in Ukraine not helping and commodity prices rapidly rising impacting both businesses and consumers.
A good example of the concerns of many companies was evident in the announcement by 4imprint Group (FOUR) this morning. Their trading statement said: “The Board is conscious that only four months of the year have elapsed and that current geo-political and broad economic factors may well affect the Group’s performance during the balance of the year. In particular, we are cognisant of potential issues relating to possible further COVID variants, supply chain disruption, inventory availability, increasing cost of product, availability and cost of labour, the effect of inflation on our customers’ budgets and the general threat of economic recession”. They are talking about the USA which is their major market but they could just as well have been discussing the UK.
Despite the fact that revenue so far this year has been up 27% over the last normal year of 2019, the company is clearly worried about the future. There have been similar statements from many other companies.
Another good example of the problems faced by many companies was a comment by Up Global Sourcing (UPGS) in a webinar yesterday. Everybody might be back in the office but the impact of higher shipping costs is having an adverse impact of 4% on their gross margin. They are looking for automation to reduce man hours and hence other costs.
We might currently have full employment but that is not going to last I suggest.
I think this might be one year to exit stock market holdings which will at least enable you to avoid monitoring your market holdings while you are on your summer holidays. Or at least move to holding shares that may be less volatile or less impacted by current economic trends.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
You can “follow” this blog by entering your email address below. You will then receive an email alerting you to new posts as they are added.