May is normally a decent month for shares, but not this year. After a decade when UK stocks had only lost money in May once, followers of the "Sell in May" adage are rubbing their hands together after the major indices ended the month with a loss of more than 5%.
Concerns about the global economy and higher consumer borrowing costs continued to haunt markets. Big FTSE 100 fallers included Ocado, down 27% and only just avoiding demotion to the FTSE 250 index, and Vodafone, down 20% and now trading at its lowest levels in over 25 years. A poor month for British Land cost the property giant its place in the blue-chip index, while a drop in the oil price hurt majors BP and Shell.
The FTSE 100 ended the month down 5.4%, the FTSE All-Share index fell 5.1% and the FTSE 250 lost 3.6%. Followers of technical analysis will note that the blue-chip index is fast heading to the 50% Fibonacci retracement of the rally from October 2022 low to February 2023 high. That line of what should be significant support is at about 7,380.
The UK, like other global markets, has also been the victim of a wider malaise while American politicians argued over a new US debt ceiling.
A drawn-out process threatened to miss the deadline for an agreement between President Joe Biden and House Speaker Kevin McCarthy. Add to the mix ongoing concerns about inflation, interest rates and the economy, and it’s clear why stocks looked uneasy for much of the month.
But a surprise late in the month made Wall Street the place to be in May. There, the swarm of tech companies exposed to artificial intelligence, or AI, benefited from a new boom for the sector, triggered by chipmaker Nvidia.
Quarterly profit and sales easily beat analyst forecasts, and Nvidia issued some aggressive forecasts for the second quarter to July. The beat was fuelled by a boom in demand for Nvidia’s chips used to power artificial intelligence (AI). Investors decided to chase anything AI related, triggering a rally at Advanced Micro Devices (AMD), Microsoft, Alphabet and many others.
The Nasdaq Composite tech index ended the month up 5.8%, and the index of America’s top 100 tech stocks turned a near-300 point drop at the start of the month into a 1,000-point gain. That 7.6% rally took the Nasdaq 100 to its highest in almost 14 months. The S&P 500 ended with a modest 0.2% improvement for the month, while the Dow Jones managed to lose 3.5%.
Thankfully, some of Nvidia’s pixie dust sprinkled over UK firms, including Scottish Mortgage Investment Trust, which owns a stake in the chip firm and peer ASML. The bombed-out FTSE 100 shares jumped almost 6% in May.
Despite an anticipated improvement in the weather, stock markets rarely do well in June.
We issued a warning this time last year, just before the FTSE 100 went on to lose 5.7% in the month. The FTSE All-Share index fell 6.2% in June 2022 and the FTSE 250 dropped 8.6%. Few markets escaped the rout, with the S&P 500 down 8.4% and the German Dax losing 11.2%.
Recession worries, interest rate hikes and inflation caused the problem then, and it’s little different this time round. It looks like the US debt ceiling issue is resolved, and Nvidia proved that shocks to markets aren’t always negative. But the omens for June aren’t great.
In the last 16 years, the FTSE All-Share has risen only four times, including 2019 and 2020. This performance means it ranks among the weakest months for share price returns.
“June is not usually a good month for investors,” says Harriman’s Stock Market Almanac. “The market falls more often than it rises in June, and when the market does decline the falls can be quite large, whereas the positive returns are usually only modest.”
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