How Windy Is It . . . ? Tuesday, 31st May 2016 – No.181
How windy was it last week?
It had been a lacklustre month for May and those following the sage advice of “sell in May and go away” were probably feeling fairly smug. Until last week that is. The main stock markets around the world turned positive for the month and it looks like “keeping calm and carrying on investing” might be the more robust adage to follow.
So why was last week a turnaround? In the face of evident de-risking, with over $100 billion of outflows from equities this year, we can look at three points that may explain the gathering of momentum:
1. Geopolitical threats have receded now that Greece has received its latest bailout funds and Brexit polls are showing the ‘stay’ side is gaining traction.
2. The oil price has firmed and it is within touching distance of $50 per barrel, removing one dark cloud that was hanging over the profits backdrop.
3. The earnings recession seems to have run its course with the US measure of profits for Q1 showing a 1.9% annualised growth rate; it may be small, but it could mark the end of the downturn.
The final silver lining must be the start of the summer driving season in the US (yes, there is such a thing), with the American Automobile Association predicting a record number of miles to be driven. With ‘gas’ prices 50 cents per gallon cheaper than a year ago and at their lowest levels since 2009, there is an estimated $20 billion of energy-related savings to be put to use this summer. Potentially good news for restaurants, hotels and theme parks.
What is in store for us this week? The countdowns begin! Not one, but two are heralded in as we welcome in the month of June. The first ticking clock is for the Federal Reserve meeting on 15th June, which is being touted as bringing in the next interest rate rise. The data over the next fortnight will be critical to Janet Yellen and her team of decision makers. What will also be crucial to their decision is the topic of the second countdown: the EU referendum on 23rd June. Stephen Hawking has added his considerable intellect to the stay argument and finds Donald Trump’s popularity inexplicable. We struggle to argue on the latter point, but the result of Brexit is far from certain.