Should you sell your shares and go away in May 2022?

Global stock market trends have been heavily influenced by a series of macro events. We review what’s been driving sentiment over the past month and look ahead to possible performance in May.

It’s been quite a grim month however you look at it. The war in Ukraine shows little sign of ending any time soon, concerns about energy scarcity and supply problems are forcing global commodity prices higher, and financial markets are increasingly volatile. As a result, April hasn’t quite been the optimistic month we’ve become used to.

As I reported here last time, April is historically the strongest month for UK stocks. Indeed, the FTSE All-Share index has fallen only eight times since 1984. As I write, with just one-and-a-half trading days of the month left, the index is down just 0.2%, so there is still time to maintain that impressive record.

Elsewhere, Wall Street has had a terrible month. Packed full of growth stocks which have seen valuations soar in recent years, the retreat to value strategies as higher interest rates threaten the growth story, has continued. The Nasdaq Composite has been hit particularly badly and, as at the close of business on 28 April, was down 12.2% in April. The S&P 500 has lost 7.7% and the Dow Jones 4%.

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US quarterly earnings season has produced some big moves. Netflix (NASDAQ:NFLX)  shares plunged by more than a third as it reported its first drop in subscribers in a decade. Other streaming providers such as Walt Disney (NYSE:DIS) fell in sympathy. Tesla (NASDAQ:TSLA), however, reported record profits and owner Elon Musk has had a $44 billion offer for Twitter (NYSE:TWTR) accepted.

However, the FTSE 100 continues to demonstrate resilience, and is within a whisker of positive territory. As mentioned before, UK stocks have underperformed rivals in recent years and there’s an element of catch-up at play. Their exposure to so-called ‘old economy’ stocks like oil and mining companies has also been supportive, although a Covid outbreak in China has caused nervousness at big miners such as Rio Tinto (LSE:RIO).

And none of the issues that are causing negative investor sentiment have gone away. Russia continues to wage war in Ukraine and inflammatory rhetoric on both sides is a worry; there’s talk of recession next year because of the conflict, western sanctions against Moscow, a likely ban on energy imports from Russia and an inflation driven cost-of-living crisis; and there’s fear that the US Federal Reserve are behind the curve on rate policy and a succession of big increases is inevitable.

Praying for a better May

There’s an old stock market adage – “Sell in May and go away, come back on St Leger Day”. St Leger Day is the famous horse race usually run mid-September. Well, many investors will be wishing they’d sold up at the end of 2021 because 2022 has been tough so far.

May has had a poor reputation for performance, but that has changed in the past decade. The FTSE All-Share index has risen in eight of the past nine years; the last time it fell, in 2019, it dropped 3.5%.

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What will happen in May 2022? Stock markets do exhibit trends, and the period between May and September is, historically, less profitable than the winter months between October and April.

However, many of these trends have been disrupted by rare events like the pandemic, a brutal war in mainland Europe and the end of a period of record low borrowing costs and loose monetary policy. It remains to be seen whether this will apply to May’s impressive recent record.