Sell in May and go away? Weekly News Flash

Rhyme-as-reason is a cognitive bias where humans are more likely to retain and believe advice phrased as a rhyme. Think of the harmless saying: “An apple a day keeps the doctor away.” Or, in the investment world, the adage: “Sell in May and go away, don’t come back until St Leger’s Day.”

After the S&P 500 tumbled by around 4% in April this year, many investors may well have been tempted to follow the ‘sell in May’ advice. But thus far, it would have turned out to be poor counsel for most investors, with markets resuming their ascent to new highs following the stumbles in April.

On 17 May 2024, the Dow Jones index breached the psychologically important 40,000 barrier for the first time and the S&P 500 achieved a record high yesterday. Nvidia stock eclipsed $1,000 for the first time, off the back of first quarter results that blew past analyst forecasts. Its market capitalisation – at $2.6 trillion – is up $1 trillion year to date. Even with a correction on Thursday, the S&P 500 is still up 5.73% for the month.

In South Africa, meanwhile, the JSE has climbed 4.63% with foreigners returning to the equity and bond markets in a very meaningful way. The rand on Tuesday, at R18.05/$, was trading at its strongest level since January 2023. South Africa appears to be getting a lift from higher commodity prices (including gold) and growing optimism for relatively benign election outcomes.

This is not to say that markets will continue to climb all the way to St Leger’s Day, referring to a prestigious British horse race that takes place in September each year. We maintain that equities will probably not gain as strongly in the second half of the year, especially with the Fed continuing to temper interest rate cut expectations.

In South Africa, meanwhile, a returning ANC majority government or a coalition government will need to make bold economic reforms to inspire continued strong gains for the JSE and the rand. It will also need to show that it can keep load shedding at bay and that populist promises made during election campaigning will not derail fiscal consolidation. In addition to those local factors, South African markets are also at the mercy of international macroeconomic trends.

All of that is a long way to say that nothing can predict what the markets will do over a relatively short timeframe of a few months. Factors like positive economic data, geopolitical events, and other unexpected catalysts mean that generalisations about seasonal trends hold little predictive power. Indeed, the S&P 500 has actually showed positive returns for eight of the 10 previous years for the May to October timeframe.

This highlights the importance of investing based on longer term objectives, rather than trying to time the markets with strategies such as seasonal buying and selling.

“Should you sell this May? You should not, and you never should unless you are reliably able to predict the future.”

– Alex McGrath, chief investment officer for NorthEnd Private Wealth

Global News

All three major indexes surged to record closing highs on Wednesday after new data showed that inflation cooled in April after ticking up recently. The S&P 500, tech-heavy Nasdaq Composite, and blue-chip Dow all closed at new record levels after the latest Consumer Price Index showed that prices were up 3.4% for the 12 months ended in April, easing from 3.5% the month before.
The minutes from the Federal Reserve’s latest meeting on Wednesday are being digested, with officials rallying around a desire to keep interest rates higher for longer. Many policymakers questioned whether policy is currently restrictive enough to get inflation to target and there was a willingness among various officials to tighten policy more if needed. Goldman Sachs CEO David Solomon said he doesn’t expect a rate cut from the Fed this year.
Rising US home prices are intensifying the housing affordability crisis for Americans, especially first-time buyers. The median price of a previously owned home in the US grew 5.7% in April year-on-year, according to data from the National Association of Realtors released on Wednesday. That was the fourth consecutive monthly increase and was a record for April prices. Mortgage rates in the US dipped below 7% for the first time in more than a month. The average for a 30-year, fixed loan was 6.94%, down from 7.02% last week, Freddie Mac said in a statement on Thursday. It was the third straight week of declines.
British prime minister Rishi Sunak has called for a national election on 4 July. His governing Conservatives are widely expected to lose to the opposition Labour Party after 14 years in power.
Inflation in Britain dropped less than expected, which prompted investors to pull bets on a Bank of England rate cut next month. The consumer price index rose by 2.3% in the 12 months to April, down sharply from March’s 3.2% increase and its lowest since July 2021, the Office for National Statistics said on Wednesday.
As China’s economic miracle ends, president Xi Jinping has to face the challenge of how to govern after the boom, which lasted four decades. Xi has been dealing with several issues: Real estate collapse, a trade war with the US, a crackdown on entrepreneurs, and extended COVID-19 lockdowns which have stalled the prosperity engine. Chinese incomes are still rising, but the slowest since the late 1980s, while the property crisis is hammering household wealth.
Congressional Democrats are investigating whether leading US oil companies have illegally colluded with one another and with OPEC to inflate prices at the pump, CNN has learned. ExxonMobil, Chevron, Hess, BP America, and three other fossil fuel companies have received a letter demanding a trove of documents and communications.
UK regulators hit Citigroup with a combined £62 million ($79 million) fine on Wednesday for failures in its trading systems that almost resulted in stocks worth $189 billion being dumped onto European markets. The regulators reduced their fines by 30% because Citigroup agreed to settle the matter. Without that discount, the combined fine would have topped £88 million ($112 million).
The US Justice Department is suing Live Nation Entertainment, the concert giant that owns Ticketmaster, which it wants broken up over claims it illegally maintained a monopoly in the live entertainment industry. It said it locked in venues into exclusive ticketing contracts, pressuring artists to use its services and threatening its rivals with financial retribution. This resulted, it said, in higher ticket prices.
On Wednesday, Nvidia posted yet another quarter of stellar financial results, reporting a 262% increase in revenue and a 462% increase in profits year-over-year. The shares rose as much as 7.8% in extended trading on Wednesday, taking them above $1,000 for the first time. The company also announced a 10-for-1 stock split, which means that the price of investing in the company has been cut as each common share will be split into 10 smaller shares.
Nestlé, has responded positively to the disruption caused by weight loss medications such as Ozempic and Wegovy. The company will roll out its Vital Pursuit line of weight-loss-drug-friendly frozen pizzas and pasta this year. The fast-moving consumer goods company produces DiGiorno pizzas and KitKats, among other frozen meal and snack brands.
JPMorgan Chase & Company is immersing new employees in AI training, preparing them for a technology CEO Jamie Dimon has likened to the impact of the printing press and steam engine. AI is helping JP Morgan on two fronts: time-saving and revenue growth.
Microsoft has introduced new software and computers infused with AI features as it steps up its efforts to out-compete Alphabet’s Google and Apple in the dawning AI age. A new category of AI-focused PCs will be called Copilot+PC. The machines from Microsoft’s Surface line and manufacturing partners will offer more power and will be 58% faster than Apple’s top-of-the-line MacBook Air M3 and will start at a pricing point of $1,000.
Apple is offering extraordinary price cuts in China, cutting prices of some of its smartphones on Tmall – an Amazon-like site owned by Alibaba – by as much as 23%. The sale will last until May 28. Apple is battling stiff competition from Chinese smartphone manufacturers, such as Huawei and Vivo, and declining market share in the world’s second-largest economy. Big brands are launching promotions for the annual “618” shopping festival.
As at Thursday’s close the S&P 500 was 0.3% up for the week.

Local News

Almost three-quarters of SA-focused fund managers are expecting a rally in domestic equities after the election on 29 May, according to a Bank of America survey. There’s a widespread belief among investors that stocks, bonds and the rand will keep soaring after the election. In a Bloomberg survey of 26 emerging-market investors, most were overweight or neutral on South Africa and said they preferred the country over investing in Egypt or Nigeria, Africa’s two other powerhouses.
Yet, if the ANC gets between 45% and 51%, builds a coalition government with smaller parties, and remains in charge of economic policy, all South Africa will get is the same sloth, incompetence, corruption, and disregard for voters, writes Justice Malala in his regular BusinessLIVE column. Aubrey Matshiqi, a veteran political analyst, says it seems the probability of the ANC garnering less than 50% of the vote at national level is receding by the day, while the DA says it is too soon to write off the multi-party charter.
The Constitutional Court ruled that former president Jacob Zuma is not eligible to be an MP. However, his name will still appear on ballot papers. His MK party remains a major threat to the ANC obtaining an outright majority.
Ace Magashule’s son, Thato, is reportedly benefiting from a company called VNA Consulting, which is almost entirely reliant on government tenders. From January 2014 to September 2017, VNA Consulting received about R945 million in its main business account. Roughly R925 million of those funds, or nearly 98%, came from government departments and other public sector clients. Ace has left the ANC to form the African Congress for Transformation.
Trade, industry, and competition minister Ebrahim Patel is to retire from the national executive in the weeks ahead, becoming the second minister to announce he will quit after Pravin Gordhan did so earlier this year and heralding sweeping changes to the economic cluster.
Co-operative governance and traditional affairs minister, Thembi Nkadimeng, has introduced the Local Government: Municipal Structures Amendment Bill of 2023 for public comment. It calls for voting on elections or removal of public officials to be made by a show of hands rather than a secret ballot. This could overhaul the country’s local government laws by making it difficult to remove executive mayors, speakers, and chief whips. It also raises the threshold for political parties to be represented in council.
Eskom’s board has approved a decision to run Hendrina, Grootvlei, and Camden power stations up until 2030, years later than their original decommissioning schedule. Eskom is prioritising grid stability and energy security before it can start considering new decommissioning dates. The new schedule for the decommissioning of the plants would be determined at a later stage.
Investec has identified Switzerland as a key opportunity for its wealthy clients in South Africa and other jurisdictions to grow their wealth as part of its international strategy. Revenue increased to £2.09 billion from £1.99 billion, underpinned by the strong performance from its corporate client franchises and Investec Wealth & Investment locally. Investec grew adjusted earnings 13% in the year to end-March. It declared a final dividend of 19p per share.
The Competition Commission has stated that a proposed merger between Vodacom, Vumatel, and Dark Fibre Africa will be “anti-competitive and has the potential to create a pivotal shift in the telecoms sector, taking the industry backwards”. The proposed merger will effectively result in the creation of the largest fibre infrastructure player in South Africa.
Shoprite, South Africa’s largest retailer, may be the biggest competitor to Amazon and Temu in South Africa, rather than Naspers-owned Takealot. Shoprite’s core business is in food retailing, complemented by furniture, pharmaceuticals, hospitality, ticketing, digital commerce, as well as financial and cellular services. This diverse portfolio positions Shoprite as a direct competitor to Amazon, Temu, and Takealot.
Pick n Pay Stores expects to report a full-year loss as South Africa’s third-biggest grocer takes a R2.8 billion impairment on unprofitable stores. About R1.8 billion of the impairment is for loss-making company-owned stores that will be closed or converted to either franchises or Boxer outlets, while the rest relates to a reduction in the value of assets of underperforming stores that will remain open. In addition, the retailer had to deal with higher debt-service costs and increased diesel expenses.
As at the time of writing the rand was 1.3% weaker and the ALSI was 0.7% down for the week.