Investment Clock insights

Looking to buy dips over the summer


Trevor Greetham

3 May 2016

Disappointment over the lack of easing by the Bank of Japan ended April on a sour note and we have just entered May, the month when the seasonality effect for stocks turns negative. The world equity markets have returned an average 10% a year in US dollar terms since 1973 including income. Incredibly, the return in the months of May to September has averaged close to zero. Volatility tends to pick up over the summer months as trading volumes dry up and fundamental analysts struggle to distinguish a seasonal drop in business activity from a weakening trend.

We have largely taken profits from the equity positions we took during the panic at the start of the year but with signs of economic recovery in the US and China, we remain constructive on equities and would be looking to buy dips again over the summer.

Chart: Sell in May and go away?

Source: DataStream World USD Total Return, average calendar year profile 1973 to 2014, rebased to 100 on 1 January. Average seasonal profile of the MSCI World equity total return index in US dollar terms since 1973.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.