The year is flying by and hopefully that means we're all a step closer to herd immunity and the end of this nightmare.
The good news is that if you followed our April seasonal patterns, you did very well. I highlighted five things and here's how the did:
A very positive backdrop for equities -- S&P 500 up 5.9% MTD
Oil strength -- WTI +9.5%
Cable strength -- +1.3% MTD
USD/CAD weakness -- +2.4% MTD
US dollar struggles -- USD was worst performing G10 currency
.A perfect five-for-five.
That will be tough to match in May where the signals aren't quite as strong, but lets give it a shot. If you've been following the seasonals for the past decade that I've been doing them, the track record is sparking.
1) Cable weakness
Cable has fallen in May in 11 straight years. Or 13 of the past 14. Or 16 of the past 20. The average since 2000 is -0.78%, which isn't huge but it's skewed by a one-off +9.47% climb in 2009 when US banks were crumbling.
Technically, there is a good risk-reward on selling with a stop at the March/April highs just above 1.40.
2) 'Sell in May and go away' doesn't exist
The oldest adage in equity markets is 'sell in May and go away'. Less known is the full saying, which is "sell in May and go away, and come on back on St. Leger's Day (Sept 15)". The idea was to avoid the summer months, which may have been weak at the time but certainly aren't now. The average gain from May to Sept is 2.75% since 2010 and only bad year in that stretch was 2011 (-8.1%). As for May itself, the S&P 500 has risen in May in 7 of the past 8 years. In the past 20 years it's the sixth best month.
3) May is a mess in the oil market
if you just take the 20-year average for WTI in May, it's at +0.84% which is right on the median. What that doesn't show is how volatile it's been, starting with the 88.4% rally last year in the rebound from April's drop into negative territory. If you take the 10 years before that, the average is -5.25%, which is the worst month. I think what all that misses is that it's a very volatile month from year-to-year with 8 of the past 20 years posting +/- 10% moves. Given that oil has been consolidating for more than two months, a break is due. That doesn't necessarily mean to avoid oil, but it calls for especially prudent risk management.
4) Timeout for the kiwi
The New Zealand dollar is set to finish on top of G10 FX in April but it may have overshot. It's been a positive month for risk trades and commodities but it's up 1.3% against both the loonie and Aussie, which is surprising given all the help CAD has received from the BOC and positive data.
Seasonally, May is the second-worst month for NZD over the past 20 years, averaging a 0.9% loss. It's also the second-weakest month for AUD.
5) Dollar rebound
At the end of 2020, everyone was a US dollar bear. It was among the biggest consensus trades out there -- Bank of America's December institutional investor survey highlighted that selling the dollar
was the second most-crowded trade. After the Georgia runoffs, I went against the grain and many soon followed. So far this year, only CAD, GBP and (barely) AUD have outperformed the US dollar, and that's after a dismal April.
Powell could have set of a dollar-buying frenzy yesterday but he remained dovish. However other FOMC members may not be so patient and that could lift the dollar. Seasonally, May is the best month for the DXY over the past 20 years, averaging a 0.66% gain. it's risen in May in 9 of the past 11 years.