

Sell in May? No Way!
01 Oct 2018
It’s not often you hear large crowds chanting “Europe! Europe!” In fact probably for about three days every two years at the Ryder Cup. I don’t suppose we’ll hear much of it at the Conservative Party conference, although I’m sure even the hardest of Brexiteers will find some political capital in tweeting their congratulations to the plucky underdogs who stuck it to the yanks!
The US performance is firmly grounded in growth, with corporate earnings forecast to rise around 22% this year. Of course, some of that is coming courtesy of Donald Trump’s fiscal stimulus, which is something of a one-off factor, one would think, and earnings growth is forecast to decelerate to around 10% in 2019 – still healthy. Neither can we rule out a more negative outcome from the trade disputes, although there is some encouragement for activity on the American continent in last night’s eleventh-hour agreement between the US, Mexico and Canada – although they hardly put much effort into the name of the accord, the United States Mexico Canada Agreement!
FTSE 100 Weekly Winners
Randgold Resources | 10.7% |
Sky | 9.1% |
Next | 5.7% |
AstraZeneca | 5.2% |
Micro Focus International |
5.0% |
Compass Group |
4.8% |
ITV | 4.3% |
Randgold Resources | 10.7% |
Sky | 9.1% |
Next | 5.7% |
AstraZeneca | 5.2% |
Micro Focus International |
5.0% |
Compass Group |
4.8% |
ITV | 4.3% |
Source: FactSet
FTSE 100 Weekly Losers
Melrose Industries |
-9.3% |
RSA Insurance Group | -8.7% |
Paddy Power Betfair | -6.1% |
easyJet | -5.8% |
DCC | -5.7% |
Standard Life Aberdeen | -5.4% |
GVC Holdings | -5.4% |
Melrose Industries |
-9.3% |
RSA Insurance Group | -8.7% |
Paddy Power Betfair | -6.1% |
easyJet | -5.8% |
DCC | -5.7% |
Standard Life Aberdeen | -5.4% |
GVC Holdings | -5.4% |
Source: FactSet
Europe managed to grind out a 1.8% return, with little influence from currency movements in the end. There is one major obstacle for Europe to overcome in the short term, one that has been lurking for the whole summer, and that is the Italian budget for 2019. I identified this as one of the potential major market movers for the autumn, and the Five Star/Lega government presented its demands, as it were, at the end of last week. Having been elected on a populist mandate with promises of fiscal stimulus, it was to some degree honour-bound to splurge the cash. An original, potentially catastrophic, deficit projection of 6% (based upon costing all their manifesto promises) was watered down to 2.4%, but this was still higher than the market felt comfortable with, leading to a sharp sell-off for Italian government bonds and, consequently, Italian banks, which hold a lot of the debt. This is the so-called “doom loop”, in which the government’s finances, the financial system and the economy all go down the Swanee together. There is, in all probability, some posturing and brinkmanship at play, and there are now another two weeks for Italy to reach a compromise with the European Commission. However, this remains a very dangerous situation, where ideology could get in the way of practicality.
Speaking of which, the UK (along with Italy and Spain) brought up the rear in terms of developed market performance. We have spoken before about the index composition problem, with the UK having a mere 1% Technology sector weighting (and Sage, which has had a poor run recently, being a significant proportion of that). Although the Healthcare and Oil sectors managed to provide a bit of impetus, UK assets remain somewhat friendless, having been dumped into the “too difficult to manage” basket by global investors. It is hard to see this mood changing without some real progress in Brexit negotiations, although this sets up the possibility of being able to buy UK-listed assets on the cheap just because of where they are listed. Unfortunately, even if Brexit is resolved (by a “No Deal”), that could open the door to another general election and to a Labour-controlled government, neither of which is going to make the UK look any more attractive.
In Emerging Markets, despite China and Hong Kong continuing to lose ground in the face of a slower Chinese economy and trade war fears, it is notable that equities in, for example, Korea, Taiwan, Thailand and Vietnam all showed positive returns, suggesting that some value has become available in the region.
Year to Date Market Performance

Source: FactSet
*IPD Total Return to July 2018
FTSE 100 Index, Past 12 Months

Source: FactSet
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