INVESTMENT RESEARCH DIVISION

ATHENA BEST FINANCIAL GROUP

INVESTMENT MONTHLY INSIGHT

4 / 2019 ∣Edition 126

‘Sell in May and Go Away’？Promising economic conditions in the US and China to hike stock indexes

The robust V-shaped bounce has visited the global stock markets in 2019. Many stock markets have been regaining

50% of their previous falls. The S&P 500 Index and NASDAQ Index even hit new historical highs. Rises of the stock

indexes in China ranked the highest since the beginning of 2019. Undeniably, the economy in the US and China is not

that bad as expected. The US had a GDP of 3.2% in Q1. This is exceptional in a developed nation. The US labor

market tension remains as well. Full employment is a perfect term to describe it. In the past 102 months, the US

employment rate has been hiking consecutively. This is the longest duration in their history. There were on average

more than 180,000 new employees per month in Jan-Mar of 2019. The unemployment rate has dropped to 3.8%,

just slightly higher than the lowest of 3.7% throughout the past 49 years. Rises of average hourly earnings in private

businesses hit 3.2%. The business performance announced in Q1 meets the standards hit 78% as well. The US

economy performed exceptionally indeed. China also hit its economic bottom as well. China had an annual growth

of 6.4% in GDP in Q1, similar to that in Q4 of 2018. The sign of economic bottoming is gradually clear.

No terms for interest rate cuts in the US

Notwithstanding, President Trump, discontent with such results, attempted to force the federal reserve to cut the

interest rates sooner and managed to re-enact the quantitative easing policy. Still, the FOMC held by the federal

reserve in April failed to adopt his stance. The federal reserve took a positive stance in terms of economic prospects

and re-stressed that there was no sign of any obvious cause for interest rates hikes or cuts. As aforementioned, the

US, with its robust economy, lacks a just cause for interest rate cuts. Frankly speaking, interest rate cuts or

quantitative easing are supposed to be a conversion-period act in times of emergency. Such acts are supposed to be

used against the possibility of a recession or a financial crisis, rather than purely hiking asset prices when the

economy is promising. Otherwise, the federal reserve would run out of the means to cope with a crisis at hand. At

that point, the bubble bursting could only harm the economy more.

Is it a good time to Sell in May?

As May comes around, many investors will doubt if Sell in May will occur. The

figures over the past 3 decades somehow proves such a statement. As it comes to

the S&P 500 index, it receives orders in early October, and short selling in the

following April. The compound annual growth rate of Oct to Apr is 7.5%. How

about that in May-Sep? It is merely 0.03%. Such a figure seemingly proves the

statement. However, the US stock indices enjoyed positive growth rates

throughout May to Sep in 2016-2018. Accordingly, this fails to support the the Sell

in May theory.

In addition to US stock indices, Hong Kong also has Poor in May, Extreme in June

and Bounce in July. This means that Hong Kong stock indices have falls in May and

June but rises in July in general. In the past score years, the Hang Seng Index used

to hit the bottom in Jan, May and Aug throughout the 12 months. The average

growth rate in Jan, May and Aug and that in July were -1.4% and 2.2%,

respectively. This kind of supports the statement as well.

Would drastic falls follow rises at the start of the year?

Let us see other statistics.The US stock indices had a rise of 17.5% in the first 4

months of 2019.This is the in the top 4 of the record in this term since 1927.In

conclusion, we identify 16% as the key.If the number is under 16%, the stock

indices will rise until the year-end.If the number is above 16%, the stock indices

will be normal or even drop.Naturally, 16% is nothing but a statistical number

without any material significance except a reference to investors.Eventually, Sell in

May will never be a must since it depends on actual situations at that point.

S&P 500 Index Chart

The present overall situation supports a high probability of Sell in

May.Obviously, the bull market has been prevailing in consensus since the

beginning of 2019.This is a consequence of that consensus and it reflects the

positive factors from investors finding the end of the US-China trade war and

entering into the agreement and trusting the federal reserve interest rate cuts

at the end of 2019.Still, we mentioned that the US lacks the foundation for

interest rate cuts currently, and such an expectation is in vain after the FOMC

was held in April.How about the US-China trade war?It is not unusual to see

both parties enter into the agreement in the end.Despite reciprocal long talks

between both powers, we find it unlikely to see a huge reconciliation.With a

present hawk stance prevailing in the US government, the US-China conflict is

never confined to trade only.The outcome brought by the final agreement

probably fails to perfectly satisfy every investor.As consensus had continuous

considerable rises in Jan-Apr, Sell in May might just be a fine excuse for

profit-taking.

High probability of profit making via Sell in May

Disclaimer

___________________

This report is for reference only. It is made based on

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deemed an investment advice by the Company. Yields

obtained in the past are not indicative of future

performance. Investment prices may go up or down.

Investors may not get back full amount of their principal.

Gains referred to in this report are for reference only.

Their actual performances are affected by transaction

time and costs of related products. The real rate of return

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