Sell in May & Go Away?

Recession Fears Weigh on Stocks

Naturally, shares are down for a second day – and it’s May – so of course, the question is ‘Sell in May and go away?’ There’s a logic to it this year. We’re headed into a recession, likely a depression. Markets have recouped about a third if you’re in Europe, half in you’re in the States from the March sell-off. The risk to reward of holding on for further gains is a lot worse than a month ago.

Trade war

Having forgotten about the trade war since last year, it’s all come flooding back for investors. US President Trump explicitly mentioned tariffs as a preferred way to extract money out of China as compensation for their role in the coronavirus pandemic. Investors again face the difficult job of predicting Trump’s next action on trade. Whether deserved or not, there is clearly a strong political motivation to ramp up blame on China in the US. The political calculus may well be that it is worth giving up the small economic benefit of Chinese agricultural purchases etc. (that might not happen anyway) to have a scapegoat for November’s election.

Buffet not buying

When the oracle speaks, markets listen. Airlines, including EasyJet, are leading the losses on Monday. Warren Buffet revealed he had sold all his airline shares, saying “there are too many planes” and that he was “wrong” to buy the shares. The big players/former national carriers (Air France / Iberia) are getting state aid, but as travel restrictions persist, many budget airlines may need to go bust. Unfortunately, capitalism is disappearing for airlines, and governments are picking the winners.


Shares are lower on the FTSE 100, with the index down around 0.2% by lunchtime. The Euro Stoxx 50 is lower by 3%, playing catchup since some European markets were closed Friday. Shopping center operator Unibail-Rodamco-Westfield is seeing the heaviest losses, down 9%. The Hang Seng took the brunt of selling in Asia, given that markets in Japan and China are closed for holidays.


Data-wise, the euro has been the one to watch with the final reading of manufacturing PMIs out across Europe and the European Commission releasing forecasts. EUR/USD just failed to breakout above 1.10 on Friday and is so far following through to the downside on Monday. Likewise, GBP/USD failed at 1.26 for a second time after its last attempt on April 14.


Gold prices are edging higher and above $1700 per oz amid the risk-off tone, but gains are capped by a stronger dollar. Oil prices are lower since a renewal of the US-China trade implies lower oil demand in China, while storage issues remain.

Opening calls

S&P 500 to open 24 points lower at 2,806
Dow Jones to open 225 points lower at 23,498


The Aussie as the FX market’s favourite proxy for China has had a turn for the worse since trade tensions flared up. This is very apparent in GBP/AUD, which had fallen for ten days straight then rebounded sharply.

Kind Regards.

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