Analysis from specialist exchange-traded product (ETP) provider Boost ETP suggests the usual advice to 'sell in May and go away...' will not cut short the rally in equities this year. Instead, it notes a recovery in the US economy could see money move out of dollar-denominated commodities and into 'attractively valued' stocks.
The old market adage 'sell in May and go away, come back on St Leger day' (the latter referring to the the world's oldest 'classic' horse race staged at Doncaster on the second Saturday of September) holds that there is a general pattern for the summer months to see weak markets as everyone packs up and goes on holiday.
Boost thinks such logic could proved flawed in 2013. It says: 'The underpinnings of the rally in equities has been improving macro fundamentals of the US economy, which is also undermining US dollar bearishness and thus the bullish case for safe haven commodity assets.
'As a result, the dissipating momentum in gold, silver and crude oil, the latter driven by the energy industry’s transformational shifts, reflects a broader asset allocation shift away from commodities towards risk assets, which continue to look attractively valued.'
Boost notes that many companies have liquid and strong cash-flow generating balance sheets, underpinning the long-term investment case for equities. It adds that US and UK shares, despite approaching or besting record highs, trade at a discount to their long-run average equity book valuations.
Data from commodity-focused ETP specialist ETF Securities, showing record inflows into short commodity products, offers evidence of negative sentiment towards this market. In the week ending 10 May it saw $48 million flow into its ETFS Daily Short Gold (SBUL) product, the highest weekly total on record, and $37 million into ETFS Daily Short Copper (SCOP), the second highest ever amount.
Shares examined the factors influencing copper and gold prices in our cover story last week. Click here to read the story.