May 04, 2018

Buy in May and sail away ?

Management comment

The Fed’s view on its rate hike cycle for 2018 has not changed for the time being, despite inflation reaching its 2% target. The central bank also implied that it could allow inflation to creep higher without changing its stance. US bond markets reacted well to the news, with yields remaining relatively stable last week at around 2.95%.

The slowdown in Europe is now a broadly accepted fact, with few observers forecasting a growth rate of close to 2.5% in 2018, particularly as its UK trading partner is beginning to feel the effects of the hesitancy of businesses and consumers due to Brexit. The US reporting season continued to reassure markets, particularly the publications of tech stocks such as Apple, which announced a massive $100bn share buyback programme.

Meanwhile, no upwards earnings revisions have been announced in Europe as yet. Global markets have nonetheless been animated by mergers & acquisitions. Deals have been announced in the telecoms sector, which requires heavy capex investments for 5G rollout, the food retail sector, which has been hit by deflationary pressures due to heightened competition from e-commerce, and among pharma stocks, which are facing growth challenges. Three emblematic deals are thus currently underway: Sprint/T Mobile US, Sainsbury's/Asda and Takeda/Shire.

Global growth has remained firm, driven by the two giants (the US and China) and boosted by dynamic M&A dealflow and share buybacks. These factors, along with a certain level of monetary policy visibility, have underpinned the recent rally, despite the much-quoted May precaution.

Although everyone knows this old adage, “sell in May and go away”, certain more optimistic investors appear to prefer to “buy in May and sail away”!

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in May 4th, 2018.

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The Fed’s view on its rate hike cycle for 2018 has not changed for the time being, despite inflation reaching its 2% target. The central bank also implied that it could allow inflation to creep higher without changing its stance. US bond markets reacted well to the news, with yields remaining relatively stable last week at around 2.95%. The...
2018-05-04