Opinion

The sharp sell-off in global stock markets may end up being a very temporary event, but I thought subscribers might appreciate a comment before I leave for ‘riot-torn’ England. The latter picture of nationwide strife would be my conclusion based on the BBC news website, although not from others.

I am aware that the Japanese market has bounced back strongly this morning, but that is not enough news to form any conclusions about what will happen next in other markets.

What I can say is that the sell off we have seen has very little to do with fundamentals, except that tech stocks, notably those connected with AI, had become overvalued. That I have already warned about a few weeks back.

The only evidence that there is any sort of slowdown in the US economy is weaker numbers on employment and the strong numbers before were reported to be upsetting the Federal Reserve and keeping interest rates higher!

The weaker numbers may help the bank make a decision to lower interest rates sooner or even by more but predicting a global recession (which is what markets are said by some to be doing) from such limited data is plain foolish.

It fits rather well with my recent piece on behavioural finance that the FT suggests that markets are at risk of creating a self-fulfilling event by imaging a recession that has not yet happened. Nothing to fear except fear itself etc…..

The next few days will give us more idea of what the ongoing permanent market trend will be, but I see the macro climate as remaining generally benign. If anything, it just got better for fixed income. I hope readers already took profits from their high flying technology funds on the back of my previous observations.

Definitely not a time to panic but a good example of how markets that have run up strongly over months will correct in hours when there is a collective psychological meltdown. If you have a lot of profit on the table, you are very likely to rush to bank it at the slightest hint of bad news and the first to sell gets the best price, so get a move on! It’s just human nature.

As we used to say when I was a small boy, back in another century when politicians who slept with ‘models’ resigned and stayed out of public life. Those gentler times when Russian apologists in English public life without any democratic mandate were not credited with being important enough to make public assessments of the US Justice system just because their favorite American pop idol had been found guilty of behaviour that was totally in character.

I actually mention the date because today being June 1st means we have ended May – that May of the ‘sell in May and go away’ variety.

Is this one of those years when profits ought now to have been safely banked? Of course, we can only know with hindsight in a few months’ time, but I would draw your attention to this extract from my trade press:

This focuses on only a narrow part of global equity markets, but it is the segment where most money has been made recently.

Thus the ‘sell in May’ mantra could well be applicable to some of your assets, but others may still be very fairly valued or even cheap.

My personal modus operandi is to take good profits as soon as they arise because I need money to spend from my portfolio. You may have different objectives, but there is always the risk of a ‘reversion to mean’ and the more stretched the valuation of an asset is relative to its long term ‘fair value’ average, the more painful the ‘ping’ back will be.

As it is the start of the month, I have also prepared a Deep Dive article and that will be finally edited and posted next week.