The old stock-market adage “sell in May and go away” might hold true this year, where research has shown that if you shift your holdings out of stocks into bonds, return to the market in November and do the same thing again every year, you’ll come out way ahead.
In May equity markets experienced a sharp, broad based sell-off sending all sectors of the S&P500 into the red zone. The Euro zone fear lingers with downgrade of the European debt ratings, the Gulf oil spill, the escalating tensions in Korea and Middle East, and the global rebalancing as some of the reasons why it was a BAD month. In the aftermath of the 2008 global crisis governments on a global basis responded to the collapse of Lehman Brothers and the ensuing financial crisis by introducing monetary expansions and fiscal stimulus of unprecedented levels.
For sure the long-term consequences of such massive expansion will have to be eventually priced into the financial markets, requiring significant re-pricing of sovereign risk. In May the VIX has tested new levels for the year, with the S&P500 down -9.77% and down -5.33% for the year. While uncertainty prevails in such an environment, one thing is certain and it’s that Uncle Sam is in a mess!
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