We wrote a week or so ago that we could not see the US dollar, US equities and US treasuries continuing to rise in tandem. We were right, US equities seem to be resilient despite the rising US dollar, but bonds are not faring so well as yields continue to rise. Gilts and US treasury yields have tended to move in line with one another over the past year, with gilt yields slightly above those of US treasuries. As year on year inflation in the UK has now fallen below that of the US, the yield on the 10-year US treasury has now risen above that of the equivalent UK gilt.
The big test for US equities will be the upcoming earnings season as we see how much impact the recent strength in the US dollar has had. Conversely the UK’s second quarters earnings season was dominated by the comments from CEO’s on the impact of the stronger pound, the recent weakness of sterling may have seen some of those headwinds redressed.
Thursday was the first test to how successful the ECB are likely to be stimulating the regions economy by expanding its balance sheet, as the result of the take up by European banks for targeted loans from the central bank were announced. The take up was 82bn euros, well below the estimate of 133bn euros.
St Leger day passed last Saturday, the significance of which in the stock market is it’s the day when all those who sold in May look to buy into the year end. So if one had sold in May how would one have got on this year?
The FTSE 100 is currently 6800; roughly where it was in May, so no real change there. The S&P 500 was trading at 1880 at the start of May and is currently jockeying with the 2000 level, so not much joy there for the sellers. The MSCI emerging markets index is up approximately 6.5%. The FTSE eurofirst 300 again is up about 3% since the beginning of May, the Nikkei 225 Index of Japanese stocks is up approximately 10%.
Market timing over such a short period of time can be a risky strategy, execution costs, tax implications and the loss of income means one needs a decent correction to justify the decision. For the curios, the sell in May trade, as is the case this year has not worked over the past 20 years. Going back further in history according to the Stock Traders 2014 Almanac between 1950 and 2012 the S&P 500 gained 1663 points between November and April, whilst losing 83 points between May and October.