It is the time of year when all business columns are contractually obliged to mention the tiredest of City cliches: “Sell in May and go away. Don’t come back till St Leger day.”
The theory is that with the Test matches, Wimbledon, Royal Ascot and Henley – and maybe even a family holiday – the City gets deserted over the summer. Trading volumes therefore dwindle and any falls in the stock market are exaggerated.
The line is so old that even some of the City’s ripest pros can’t recall when they first started trotting it out, with one academic study even claiming it can be traced all the way back to 1694 (although presumably only the first bit, as the St Leger began in 1776).
Anyway, the expression represents a throwback to the time when the gentleman stockbroker would grab the billycock and umbrella, nip out of the office for a spring luncheon, and only consider returning to work once the summer’s sport had been concluded with the classic race in Doncaster, which is typically run on the second Saturday in September.
All most agreeable. But the “sell in May” line is a rare thing in the crowded field of City platitudes, in that while it is clearly self-serving (an obvious excuse for bunking off work, dressed up as investment advice) there might also be something in it for the client.
First, it throws up the pleasing idea that investors can replace their broker with a calendar. And second, if stockbrokers are out of the office, the damage they can inflict on portfolios should be reduced, thereby allowing punters to enjoy their own summers. Third, unlike a lot of the City’s advice, it is not guaranteed to lose you money.
Granted, betting that the FTSE will fall between May and September tends to fail more often than it succeeds. While “sell in May” supporters would argue that the winnings from the years in which the punt has come off have outpaced the losses from the summers when it went wrong over the past decade, those figures are skewed: in 2008, the stock market slumped by around 800 points.
Still, there are slightly more technical-sounding reasons why “sell in May” might sometimes work. Some reckon it relates to when dividends are paid, while others have argued it is all to do with the times of the year at which companies tend to raise money and issue shares. For this they need to announce either a profit forecast or a profit figure, so the natural timing for an issue is at the time of the company’s results – which, companies’ accounting years being what they are, congregate between March and May.
But the most likely explanation for stock market moves during the summer seems to be more prosaic: that is, events. And, this year, some reckon the stars are aligned for a fall.
Fiona Cincotta, senior market analyst at financial spread betting group City Index, says: “While the FTSE’s average returns over the past 30 years for the five-and-a-half months to St Leger day are rather uninspiring, this year could see the ‘sell in May’ adage ring true. The Bank of England is looking increasingly less likely to hike rates in May, but a rise prior to mid-September is a high probability. This, combined with increased clarity over Brexit through the summer, could see the pound rally: and given the FTSE’s inverse relationship with sterling, Britain’s top share index could well be in for a tough couple of months. Meanwhile, geopolitical tensions could also flare up again.”
All of which sounds like bad news for the City workers this summer: they may have to show up for work.