As I wrote earlier this week, the adage of sell in May and go away, has to be on the table this year, more than ever.
The markets are looking at a wall of worry over the next six months, which I believe still needs to be priced in.
A highly contested election with 1968-like riotous conventions this summer, a Federal Reserve hell-bent on raising rates to quell growing unrest in the derivative markets and an economy struggling to grow above 1% in any quarter.
Given these upcoming known events and the possibility of greater unknown events, I believe this will be the highs in the stock markets.
So let’s see what the opening levels are in a number of areas on May 27, with two days of trading left in the month.
Dow Jones: 17,828.29
S&P 500: 2,090.10
US 10-year: 1.833%
Where will these levels be by November is anyone’s guess. My belief is that stocks will be lower, given uncertainty in the election and the tightening of credit. Is a 15K Dow possible? Sure and its far more possible than a 18K Dow.
There really should not be a rate rise in June. Given the almost zero-bound economic growth in GDP, no central bank would think about tightening, but as I said, I keep hearing about constrictions in the pricing of derivatives as being a driver. This was the motivation behind last December’s rate hike as well.
So there we are. We’ll come back to this during the summer and fall to monitor what’s going on. This is the line in the sand for the unofficial start of the beach season.