The “Sell in May” Myth, in Practice – Looking back on May 2016, the “Sell in May” myth proved to be just that – a myth that would have proven disadvantageous to investors had they followed this ‘logic.’ In May, the S&P 500 rose a little over 1.5%, and global stocks, as measured by the MSCI World were essentially flat. Markets don’t pay any attention to calendars, so the strategy of selling stocks just because the month of May arrived is like wearing a raincoat all month because it historically rains a lot. The market continued its recovery from the tumultuous January, as negatives began to fade and mixed economic data displays as many positives as negatives. Earnings have been a soft spot, but we expect them to recover in the back half of the year. Stay steady, review investing adages with skepticism and hang your hat on reliable data.
Are the Rio Olympics in Danger? – It’s difficult to imagine Brazil in a more compromised position than it is today. And, with the Olympics just several weeks away, Brazil seems far from ready to host. With a leader that’s essentially been removed from office (Dilma Rousseff), implications of corruption at the highest levels of government, a recessionary economy, high inflation and a frustrated populace, the Olympics could not have come at a worse time. But, it doesn’t end there. Just this week, 100 prominent physicians, bioethicists and scientists from around the world wrote a letter to Director-General of the World Health Organization to exert pressure on Olympic authorities to move the Olympics from Rio de Janeiro or delay the Games because of public health concerns over the Zika virus. The spreading of the virus is a major concern, and with tourists expected from dozens of countries the risk of outbreak and global spread is acute. This is a story to watch for the sheer drama of it all.
Japanese Sales Tax Delay – Prime Minister Shinzo Abe is once again postponing an increase to the Japanese sales tax (from 8% to 10%) by 2.5 years until 2019. In our view, this sales tax is a bad idea whether it’s implemented now or two years from now. It runs counter to Japan’s goals of sprucing up consumer spending to support inflation and the mere mention of it makes markets cringe. On the other hand, in the absence of rising government revenues to help curb a growing national debt and deficit, Japan’s credit rating is at risk. We’ve long said that the secular view of Japan is a negative one, with the economy trapped in a zero interest rate environment and very unfavorable demographic shifts due in the near term.
Recession-Proof Australia – Did you know that there has not been a recession in Australia since 1991? That’s 25 years! You might be thinking, “with the exception of the Great Recession, right?” Wrong! Australia even grew then. Q1 2016 proved another sturdy growth quarter for the ever-resilient economy down under, with annual growth rising +3.1%, marking the country’s fastest expansion in more than three years. Australia’s long-term success can be attributed to many factors, but its constant effort to diversify its economy is probably the most critical. Oh, and because of China’s help. Australia has vast natural resources and a huge mining industry, and they’ve been able to ride China’s growth coattails by exporting to the fast growing country along the way. Having rich neighbors helps growth (just ask Mexico).
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