Sell in May and go away rarely works, but we shall see.

What a difference a few weeks make. Approximately this time last month, Donald Trump stood up in front of the world’s media with a large board to explain the rationale behind his tariff policy and what it was going to cost to import into the US, depending on where the goods were coming from. Liberation Day unleashed a wave of selling as investors, already nervous that economic growth was weakening, went into full sell mode. The Vix index hit highs seen during the pandemic. Some of those fears were justified as this past week, it was announced that the US economy did shrink in the 1^st quarter of 2025, there were further signs that the employment market is weakening as the monthly ADP report saw fewer jobs created in the private sector than anticipated, and credit card delinquencies have been on the rise. Consumer confidence continued to suffer.

The monthly ISM Manufacturing report confirmed that activity in the manufacturing sector continued to decline in April; however, it was not as much as the consensus expected, and there appeared to be inconsistencies in the report. In particular, the new orders component was well ahead of expectations. Overall, one gets the picture: all is not rosy in the US economic garden. There was one piece of good news this week: the latest Personal Consumption Index fell to 2.3%, trying ever so hard to get back to the Fed’s 2% target. As a result of all this, the market is now pricing in four Fed rate cuts this year, the first of which will likely come in June. Earnings season has also calmed investor nerves somewhat. Everyone’s must have stock these days, Microsoft, rising almost 10% in trading as earnings came in ahead of expectations, on the back of a strong contribution from the cloud services division. Here we are a month later, and all that panic seems behind us, as stock markets have recovered most of their losses and the Vix index is back to where it was before all the troubles. Portfolios that were looking pretty glum are probably no worse than they were at the point Trump took to the airwaves.

Selling in May and going away rarely works in history, but we shall see this year. I was grateful to find out where this so-called adage comes from. Apparently, in years gone by, when the U.S. was more of an industrialised economy, it was common for plants and factories to close for a month or longer in the summer. This downtime allowed businesses to retool and gave employees time to go on holiday. The “Sell In May” theory was that companies would conduct less business during the summer months, resulting in a dip in earnings, which should, in turn, reduce stock prices.