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Markets Defy ‘Sell in May’ Advice—But Don’t Rule Out Bears Yet

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“Sell in May”

May has not been a positive month for equity investors historically—investors are quite familiar with the advice to “sell in May and go away.” However, last month, equity markets defied “sell in May” proponents and rose. The SPDR S&P 500 ETF (SPY) rose 1.5%, taking its year-to-date gains to 2.4%. However, the Dow Jones Industrial Average is still negative for the year.

Turbulent month

However, May was another turbulent month for markets. The United States and China held two rounds of trade talks last month. Although the second round of talks ended on a positive note, Donald Trump took another salvo at the massive US trade deficit with China by announcing tariffs on Chinese goods a few days after the talks.

Last month’s action

Furthermore, last month, the United States pulled out from the Iran nuclear deal. Although the move was largely expected, it led to a spike in energy prices. However, energy prices subsequently cooled off amid fears of higher OPEC and Russian production. Political turmoil in Italy also rattled markets last month.

On the trade front, Trump slapped tariffs on NAFTA and European Union steel and aluminum imports, prompting a sell-off in equity markets on May 31. End steel and aluminum users such as Caterpillar (CAT) and Boeing (BA) saw selling pressure. In the steel space, while U.S. Steel Corporation (X) and Nucor rose after the tariff announcement, AK Steel (AKS) fell. In the next article, we’ll see how policy uncertainty is affecting markets.

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