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Trade War: Should You Still Sell in May and Go Away?

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Sell in May

Historically, May has not been a positive month for equity investors, which is why the “sell in May and go away” phrase became popular. So far, “sell in May” proponents seem to be right this year with the SPDR S&P 500 ETF (SPY) down 2.9% for the month based on yesterday’s closing prices. Apple (AAPL) has seen a downwards price action of 8.6%. Qualcomm (QCOM), Broadcom (AVGO), and Intel (INTC) have also underperformed the markets with month-to-date losses of 19.5%, 15.5%, and 13.3%, respectively.

It’s no secret that the escalation in the trade war has been the key driver of this month’s sell-off. Notably, corporate earnings have been better than expected in the first quarter with earnings beats running above their five-year average, according to FactSet data.

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Trade conflict

Markets might not see much respite in the near term given the fact that both the United States and China have hardened positions in their trade conflict. After the restrictions on Huawei, the Trump administration is considering imposing restrictions on another Chinese company, Hikvision. The Chinese leadership is also preparing to dig in for a trade war. Adding to the worries are geopolitical tensions in the Middle East. Brexit is also getting more dramatic and complicated as the deadline approaches.

To be sure, over the last couple of years, markets have found a way to live with all these geopolitical concerns. However, escalation in the US-China trade war is a real worry for markets and has been dampening both consumer as well as business sentiments. Investors have also moved into a risk-off mode amid growing tensions between the world’s two biggest economies.

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