To The Moon

As of closing on May 31, The $S&P 500(.SPX)$ closed up 0.25% in May to 4179.83 points; $NASDAQ(.IXIC)$ closed up 5.8% to 12935.28. $DJIA(.DJI)$ closed down 3.49% to 32908.27.

Judging from the industry standard of the $S&P 500(.SPX)$ index in May, three sectors closed up: technology stocks rose 9.12%, followed by the Communication Services sector, which closed up 6.25%. Then there is the Conumer Cyclical section.

Data:https://finviz.com/

Data:https://finviz.com/

Specifically, the month-to-month increases in the technology sector include: $Alphabet(GOOGL)$ $Meta Platforms(META)$ , $NVIDIA Corp(NVDA)$ , $Microsoft(MSFT)$ , $Broadcom(AVGO)$ ;

The stocks with better gains in Communication are $Apple(AAPL)$ , $Salesforce.com(CRM)$ , $ServiceNow(NOW)$ , $Applied Materials(AMAT)$ , $KLA-Tencor(KLAC)$ , and other stocks.

Among Consumer Cyclical sector, the gains include AMZN, TESLA,

May in history is the month of selling, the saying "Sell in May and Go Away" is a well-known phrase in the US stock market, which implies that the performance of the US stock market from November to April, During the half-year period, tends to be better than the performance from May to October during the other half-year period.

@Tiger_Insights ：Data Board| Is “Sell in May” True? Check Opportunities about Calender Effect!

Judging from the current data, if you didn't buy in May, it may be a bit regretful that you missed a wave of gains in technology stocks and AI stocks.

1. So? Should ‘Sell in May’ investors buy back in June?

Welcome to read a dip macro analysis from Shane Oliver，Head of Investment Strategy and Chief Economist • AMP

SHANE OLIVER

Shane Oliver shared on https://www.livewiremarkets.com/ noted that：From their lows last year, global and US shares are up 17% as investors have been buoyed by evidence of peaking inflation, anticipation that central banks are near the top, resilient growth and profits and enthusiasm for Artificial Intelligence (AI) following the launch of ChatGPT late last year pushing up related stocks. And we are thinking whether it is sustainable.

There are some worries as below:

• First, the worry list for shares: recent weeks have partly been dominated by the political soap opera around the US debt ceiling. A deal has now been reached suspending the ceiling out to January 2025 with caps on spending. There is still room for setbacks in terms of getting it passed by Congress ahead of Treasury’s 5 June deadline, but odds are it will pass providing a short-term boost for shares (which looks to have been factored in) allowing shares to focus on other things.

• Second, leading economic indicators are continuing to point to a high risk of recession in the US and elsewhere. This can be seen in yield curves and the US leading economic index is also signalling recession. 

• Third, a recession would mean a sharp decline in company profits which is not currently expected by the consensus.

• Fourth, the Chinese economic recovery has started to disappoint. In particular, it’s concentrated in services as opposed to manufacturing. This may mean less of an impetus for global growth.

• Fifth, weakness in copper, oil (despite OPEC production cuts), and other industrial commodities suggests weakening demand and this is also being reflected in the growth sensitive Australian dollar which recently broke below support at $US0.66. This is in part related to the relative weakness in manufacturing in China and partly explains the relative underperformance of the Australian share market so far this year – its up 2.5% compared to a 9% rise in global shares.

• Sixth, US banking stress is continuing resulting in additional tightening in lending standards as other banks seek to avoid a Federal takeover.

• Seventh, while the debt ceiling is close to resolution it will entail less spending than would otherwise have been the case (around 0.2-0.3% of GDP less) and the withdrawal of the liquidity boost the Treasury has been providing investment markets.

• Eighth, while central banks are probably at or close to the top, they remain hawkish and risk doing more – potentially over-tightening. The Fed (at 5.13%) is concerned about sticky inflation. At this stage, the Fed is likely to pause at its June meeting but may still do more at its July meeting.

• Ninth, investor sentiment leans slightly on the optimistic side which is bearish from a contrarian perspective – albeit there is no sign of euphoria and investor positioning in shares looks underweight which is positive from a contrarian perspective.

• What’more, share market gains from last year’s lows have so far been more narrowly based favouring defensive or growth sectors (like tech) relative to cyclicals and value than would be normal at this point. In fact, so far this year AI related stocks have accounted for all of the rise in the $标普500(.SPX)$ with the Dow Jones index actually flat year to date.

2. But it’s not all negative

However, while the worry list is long there are some positives for shares.

• First, US and global shares are still tracing out a pattern of rising lows and highs from last October, which technically is still consistent with a bull market.

• Second, so far global economic conditions have held up far better than feared. In fact, business conditions according to purchasing manager surveys (PMIs) have improved since late last year suggesting growth will surprise on the upside. 

Related to this so far company profits globally have held up better than expected. The complication is that the strength may be exaggerating things as it’s being driven by services but manufacturing is weak and its normally a better guide to cyclical conditions and is warning of weaker conditions ahead.  

• Fourth, enthusiasm for AI has the potential to push share markets higher directly in terms of IT stocks that will benefit from related demand associated with an upgrade to AI, but also via a productivity boost to high labour industries that will boost growth and profits and lower wages. Of course, as we saw with the late 1990s tech boom, the benefits could take time to materialise and investor interest could get frothy setting up a short term pullback.

3. Implications for investors

We remain of the view that shares will do okay on a 12-month view as central banks ease as inflation cools. But given the long list of negatives, global and Australian shares are vulnerable over the next few months to a correction. There are several implications for investors:

• Unlike last year, government bonds should provide protection for investors as bond yields have potential to fall if recession worries rise.

• For short term investors it’s a time to be cautious.

• However, while times like these can be stressful, for superannuation members and most investors the best approach is to stick to basic investment principles. 

This may sound repetitive, but these things are always worth keeping in mind:

1. Share market pullbacks are healthy and normal - their volatility is the price we pay for the higher returns they provide over the long term;

2. It’s very hard to time market moves so the key is to stick to an appropriate long-term investment strategy;

3. Selling shares after a fall locks in a loss;

4. Share pullbacks provide opportunities for investors to invest cheaply;

5. Shares invariably bottom with maximum bearishness;

6. Australian shares still offer attractive income versus bank deposits; and

7. To avoid getting thrown off a good long-term strategy, it’s best to turn down the noise around all the negative news flow.