Be aware of potential September slump: Tilney Bestinvest

Investors following the old adage “sell in May, come back in September” could be “badly wrong-footed” due to the turbulence markets have felt following series of events affecting markets this year, according to Tilney Bestinvest.

Jason Hollands, managing director, business development and communications at Tilney Bestinvest, said that there might be more to the September investment markets that meets the eye calling on Tilney Bestinvest research to highlight potential market trends. “I’ve long been sceptical of the old adage that investors should “sell in May” and come back to the markets in September and anyone dogmatically following such an approach this year will have been badly wrong-footed,” he said.

“For despite many observers and professional investors – including ourselves – being cautious in our 2016 outlook and a rocky start to the year which began with Chinese markets nosediving and a bloody rout for commodities, the summer returns from stock markets have been surprisingly buoyant.”

Defensive assets

Hollands points that while in recent months many investors have been ditching equities in favour of defensive assets such as gold and absolute return funds, the stock markets have “seemingly brushed aside” due to events such as Brexit, party political upheavals, terrorist attacks in Europe, an attempted coup in Turkey and “the most extraordinary US Presidential campaign in living memory”.

“The FTSE 100 Index, a bellwether for UK blue chip shares, has surged 10% from a closing level on 29 April of 6,241 points to 6,868 (as at 24 August),” said Hollands. “And that doesn’t include the impact of dividends. It’s been a similar story in other markets, with America’s S&P 500 rising from 2,065 points at close on 29 April to 2,187 (as at 24 August) – a return of almost 6% (excluding dividends).

“The current bull phase has endured for a very long-time, share prices across many markets look stretched compared to history, but underlying economic growth is weak or uncertainty. The de facto cellotape that has held markets together, has been the support provided by central banks, in the form of record low interest rates and other unconventional measures such as “QE” – a form of money printing. “Understandably there is growing scepticism towards how much longer this can go on and what it might take to set in train a reappraisal of asset values,” said Hollands.

Disproportionate number

Research from Tilney Bestinvest suggests that over the long term, September rather than the summer months is a time which has actually witnessed a disproportionate number of dramatic market slides. “Since the 1990s, there have been no fewer than seven notable slumps in September including Black Wednesday, the aftermath of the 9/11 attacks and the collapse of Lehman Brothers,” said Hollands. “Research by Tilney Bestinvest has revealed that, based on data from 1986, September is the month with the worst average total return on the FTSE All Share Index (-0.94%). September also has one of the higher incidences of negative returns from equities (50.00% of the time).”

Hollands concluded that this does not mean September is jinxed per se and the “current sugar rush” may continual to run on for some while yet. But as fears of Brexit-led meltdown have rapidly evaporated, other risks remain.

US interest rate hikes

“Above all investors will be eagerly assessing the potential for further US interest rate hikes this year and pouring over what Fed Chair Janet Yellen will say at this week’s annual Fed conference in Jackson Hole,” he added. “Many feel the Fed has not given the markets a clear enough steer and a more hawkish approach could seriously rattle the markets, reversing the more recently improved fortunes of emerging markets in particular.

“Serious worries also persist about the fragility of the Chinese financial system where the biggest credit bubble the world has ever seen means banks are sitting on a mountain of bad debt, much of which is off-balance sheet through so-called Wealth Management Products.

“And back to the US. While maverick Donald Trump is seriously lagging in the US Presidential polls, perhaps reducing fears of a political upset, don’t underestimate the importance of TV debates in the US elections. The first of these takes place on 26 September,” concluded Hollands.

Gary Robinson
Head of Video and Ezines at Open Door Media Publishing. Deputy Editor, International Investment. An experienced journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as a fully qualified IFA, Gary works across both International Investment and InvestmentEurope titles. Previous video production credits include projects on BBC, C4 and SKY.

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