Global Equity Markets: Sell in May and Go Away?

Some experts have been talking about selling in May and going away.

The premise of this precept is fundamentally seasonal.

Chart from Equityclock.com

One expert even cited the Tobin Q which implied for high valuations, as one of the 'fundamental' reasons to do so.

Chart from Greg Mankiw

As I have been saying since 2008, it has been politics that has essentially driven financial markets more than corporate valuations or economics. And that’s why many experts, relying on the former metrics as guidance, have got it all so wrong.

Anything can happen in the markets. Most especially that today’s financial markets have been heavily distorted by various government interventions.

And as I have repeatedly been pointing out, the stock market have been a target for government policies where the US government has even less been coy about this, which they claim represents “success” in policymaking.

This means politics will continue to determine market outcomes or its directions (via the boom bust cycle).

Say for instance, if the US Federal Reserve decides to “covertly” bolster the US Democratic Party to negotiate for the vote on the debt ceiling, all the Fed has to do is to allow 'some' market volatility to pervade by withholding QE or by selling some market securities held by the Fed.

And the ensuing market volatility, as the politicians will point out, will be imputed to the uncertainty from the unwillingness to increase the debt ceiling by the opposing Republican Party.

But the truth is the US Fed has been instrumental in shaping the conditions of the equity markets. It’s been part of Ben Bernanke’s ‘crash course to central bankers’ dogma.

Market volatility, thus, adds to the leverage of politicians in negotiating vital policies.

Also the war on commodities may have ripple effects on global financial markets not limited to equities, as I pointed out in my latest observation on the possible ramifications of global price manipulations on the commodity markets to the Philippine Mining index.

So there are many complex interrelated and intertwined factors that may influence global stock markets more than seasonal factors.

I’d rather use the actions taking shape in major commodity markets, global equity markets, yield curves of major economies and of Asia, and the unfolding geopolitical events as guidance.