Will FTSE 100 and UK shares remain the place to be in May?

A very wet April failed to dampen investor appetite for UK stocks as the revival of our home market’s fortunes began, ending in a break above 8,000 and series of record highs for the FTSE 100 index.

Investors switched their money out of expensive US tech stocks into unloved areas of the market such as China and the UK, whose various stock market indices dominated the top 10 risers in April.

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Hong Kong ended the month up 7.4%, Shanghai added 3.1%, the FTSE 100 2.4% and FTSE All-Share index 2.1%. Even smaller companies on AIM had their day, growing 2.3% last month. But the long-awaited FTSE recovery only began mid-month. Performance since then is even more impressive, with the FTSE 100 up 4.1%, the FTSE All-Share 4% and FTSE 250 3.2%.

BHP Group Ltd (LSE:BHP)’s bid approach for Anglo American (LSE:AAL) excited the mining sector, sending Anglo shares soaring 35% in April. A 19% gain for Fresnillo (LSE:FRES) happened in the first half of the month as the price of silver rallied to a multi-year high, while Rio Tinto Registered Shares (LSE:RIO) added 9%, Antofagasta (LSE:ANTO) 8.4% and Glencore (LSE:GLEN) 7.4%.

Banks did well too as investors responded positively to first-quarter results from NatWest Group (LSE:NWG) and Barclays (LSE:BARC), chasing the shares up 14.3% and 10.6% respectively. HSBC Holdings (LSE:HSBA), which published its numbers this week, joined the party, adding 12.4% in April. Lloyds Banking Group (LSE:LLOY) missed out on the fun though, ending the month little changed as its figures failed to inspire. 

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At the other end of April’s list were the mighty US indices that have dominated the past six months, joined by the runaway Japanese Nikkei. America’s Dow Jones propped up the table last month with a 5% loss, the Nasdaq Composite tech index fell 4.4% and the S&P 500 4.2%. Japan gave back 4.4% of its rally to record highs.

The Magnificent Seven tech stocks had their biggest weekly loss of market value mid-month as investors worried about the pace of expected interest rate cuts this year. Federal Reserve chair Jerome Powell said a strong jobs market and sticky inflation meant US policymakers were still not confident that it was right to reduce borrowing costs. “It's likely to take longer than expected to achieve that confidence," he warned.

Despite clawing back some of their losses amid a deluge of results later in the month, many finished April in the red. Meta Platforms Inc Class A (NASDAQ:META) suffered an 11.4% deficit, Microsoft Corp (NASDAQ:MSFT) fell 7.5%, NVIDIA Corp (NASDAQ:NVDA) 4.4%, Amazon.com Inc (NASDAQ:AMZN) 3% and Apple Inc (NASDAQ:AAPL) 0.7%.

Should you sell in May and go away?

We talk about this well-known strategy each year – selling shares in May, then forgetting about stock markets until the St Leger Day horse race at Doncaster in the middle of September.

The saying has its origins in days gone by when wealthy traders would leave the heat and stench of London for the countryside. They’d spend the summer frequent sporting events like the cricket, Henley Regatta and horse racing. It meant not much business got done during the warmer months until the final Classic of the British Flat season had been run.

It probably used to be a sensible approach, but not so much in the modern era. Nowadays, we can all take a few weeks off work over the summer – including City big-hitters. While some of the big decision makers are out of town, and institutional traders are reluctant to open significant new positions, the stock market does not shut down. 

What can happen is that markets are more volatile because there are fewer investors around. It means summer is a quieter period in terms of trading volumes, and reduced liquidity - fewer buyers and sellers - can sometimes lead to more volatile share prices.

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A year ago, I talked here about May being a historically strong month for shares, certainly this century. Indeed, in the past decade it had fallen just once in that month. Well, make it twice, following a 5.1% slump for the FTSE All-Share index in May 2023. History tells us that when the market does fall in May, losses are larger – the All-Share fell 3.5% in 2019 and 7.3% in 2012.

After last night’s unsurprising decision by US policymakers to keep American interest rates unchanged, investors will need to keep an eye on inflation and economic data for any indication as to what the Federal Reserve will do at its meeting in June. Speculation will rumble on through the month.

It’ll be interesting to see what the Bank of England says on 9 May when it announces the Monetary Policy Committee’s latest decision on interest rates. Don’t expect any change here either, but it’s not inconceivable that the UK will cut rates before the Fed, possibly as early as June.

As well as the data and policymaker commentary, summer stock market performance could be influenced by events in the Middle East and Ukraine, oil prices, the next corporate earnings season in July/August and company valuations (overpriced US tech and underpriced UK shares). There are elections looming in both the UK (?) and US (5 November) this year too, so watch the opinion polls and prepare for some portfolio adjustments ahead of the big day.