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US Stock Markets: Should You ‘Sell’ or ‘Buy’ in May?

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  • US stock markets have been very volatile this year. After the worst first quarter in history, markets rebounded sharply last month.
  • Several analysts have been calling for a market crash leading to a double bottom. However, a section of the market sees more upside ahead. Historically, May has been a weak month for markets.

Are US stock markets a “buy” or “sell” in May?

There has been almost unprecedented volatility in US stock markets this year. In the process, markets have created several records on the upside and the downside. As we head into May, there’s saying “sell in May and go away.” However, pessimists have been calling for a stock market crash for over a month now. In April, US stock markets had their best month since 1987.

A double bottom?

Several fund managers, including Paul Tudor Jones and Jeffrey Gundlach, expect US stock markets to form a double bottom. Scott Minerd, the chief investment officer of Guggenheim Investments, expects the S&P 500 to fall to 1,200—possibly the most bearish target on the index. According to Société Générale analysts, “Many promising … rallies fizzle as the initial euphoria clears and the grim realities of underlying fundamentals come to the fore.”

Will Meade, a former Goldman Sachs analyst, sees stocks dropping another 40%. He compared 2020 to the 2000 US stock market crash. The dot com bubble caused the crash in 2000. Currently, the COVID-19 pandemic would be responsible for a crash. Nomura’s Masanari Takada thinks that the rally in equity markets will fade away soon.

Warren Buffett doesn’t see many buying opportunities

During Berkshire Hathaway’s annual shareholder meeting, Warren Buffett emphasized long-term investing. Despite the crash in US stock markets in the first quarter, Buffett couldn’t find many buying opportunities. He doesn’t see much value in Berkshire Hathaway stock (NYSE:BRK.B) at the current prices.

May started on a terrible note for US stock markets due to fears about US-China relations. Incidentally, there was also a serious escalation in the US-China trade war in May 2019. Last year, President Trump accused China of reneging its previous commitments.

Some analysts see a “buy” in May

Meanwhile, some analysts seem to disagree with “sell in May.” Recently, Mike Wilson of Morgan Stanley said that he sees buying opportunities in markets especially in beaten-down sectors like banking and consumer durables.

The consensus view seems to be that US stock markets might see another wave of selling after the April rally. Fund managers, high net worth individuals, and retail clients have increased their cash holdings in anticipation of a fall in equity markets. However, financial markets don’t move on consensus views, which we saw in 2019. Bears called for a crash in 2019. Instead, US stock markets rose sharply and hit record highs last year.

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