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  • 2017/05/04
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Stock market or life?

The answer to that question is: a bit of both. We’ll not discuss the comments in the foreign press about Wednesday’s snarky debate between the two finalists in France’s presidential election. Let’s concentrate instead on the stubborn attitude of markets and investors. The business daily Les Echos turned the old adage “Sell in May and go away” into a creed. It’s certainly a quip intended to lighten the general mood, but that's not all. What the article is trying to tell us is that the Paris stock market is enjoying a relatively unexpected honeymoon, erasing the effects of the 2008-2012 financial crises that included the subprime debt meltdown and the eurozone crunch. The key index posted its best quarter since 2000, with an 8.33% rise. What’s going on? 

Investors are convinced of Europe's economic recovery; the European Central Bank is supporting this optimistic movement; and business sentiment is upbeat, even if France's recent unemployment figures are slightly disappointing. The meaning behind the adage– why sell stock holdings in May? – also expresses the market mood.

By and large, May is not the briskest month in the markets. Above all, it often heralds a crisis further down the line, usually just before the summer. According to an article in the business press: “In a recent analyst’s note, Aurel BGC looked at the monthly movements of various indices and reached the conclusion: Sell in May, by all means. But come back in October.

“The analyst imagined that, starting in 2000, a fund was fully invested in the CAC 40 index between January and end-April and again between October and December, and for the rest of the year held everything in cash. In other words, the fund would be exposed for seven months only, steering clear of the market for the other five”. And indeed, the biggest corrections often occur between May and September, meaning that markets follow a seasonal pattern and slacken quickly as the thermometer rises.

This might all be a light-heated windup, except that a close observation of market behaviour bears out the theory. What analysts now fear is that the outcome of forthcoming legislative elections will hobble France’s new president and stymie the promised wave of reforms. So, the possibility that the incumbent will have to co-exist and work with a hostile parliamentary majority means that June will be an uncertain time and further surprises lie in store. Reading between the lines, we detect a degree of electoral fatigue. Markets need tangible choices, and the eurozone has to resume discussions about its future. Politics has swamped both the debate and the timetable. To some extent, the Paris Bourse could use a holiday, so the adage should read: “Sell in May and go away. But get back soon!”

Christian Moguérou

Sources: Le Figaro Economie, Harvard Business Review, Financial Times, Le Monde, Le Point, Les Echos

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