Losing money in the stock market when it’s going down is annoying. Even more painful, however, are rising prices when you are not there.
In the spring of 2023, the problems for the stock market are just lying around: rising interest rates in the USA and Europe are flanked by uncertainty as to when the central banks will become more moderate again and by fears of a recession in the second half of the year. The bankruptcies of American regional banks, political worries about China and Taiwan, unpleasant inflation and turbulence on the housing market are all factors.
Without a doubt, there are currently enough burdens that would justify the Dax falling 1,000 or 2,000 points. The same applies to the US markets. “But so far the stock markets have been robust, every setback, no matter how small, is bought,” says Jürgen Molnar from the broker RoboMarkets.
The Path of Pain
The professional traders who operate at RoboMarkets therefore had to take the path of great pain in the first third of the year. And that way was rising stock prices. Many investors went into 2023 expecting prices to fall. For example, they bought put warrants, securities whose prices rise when stocks fall (more on this here). But then things went differently, they suddenly had to stock up.
“Every setback, no matter how small, was bought immediately and this gave stock market bears little chance to breathe deeply,” says Molnar. Anyone who has been around for a long time knows the rule that the courses always take the path of greatest pain.
“This pain trade was clearly pointing upwards, hardly anyone was positioned for the Dax to break new records,” says Stefan Riss from the Acatis fund house. The same applies to the US market. Almost 70 percent of fund managers see the S&P 500 at a maximum of 4,000 points at the end of the year, only five percent above 4,250.
The stock pro
Daniel Saurenz is a financial journalist, a passionate stockbroker and the founder of Feingold Research. He and his team have more than 150 years of stock market experience and combine stock market psychology, technical analysis, product and market expertise. At t-online he writes about investments and the situation on the markets, always focusing on the risk-reward ratio for investors. You can reach Daniel on his portal www.feingoldresearch.de.
Sell in May?
At least one supporting factor has disappeared since the end of the month: seasonality. As is well known, the strong phase between November and April, like the last one, is followed by a rather challenging time over the summer months. May, September and October are known for sharp pullbacks. Those who are underinvested hope for “Sell in May” and lower prices (more on this here).
As is so often the case, however, the problems lurk in the details. In US midterm election years like 2022, the stock markets often tend to be weak over the summer. However, prices are more robust in pre-election years. And the strong start to the year, at least from a statistical point of view, is more of an argument for only slight consolidation – if at all.
How it was in the past
If the S&P 500 was positive at the end of April, the May-October phase was positive in three out of four cases and the index climbed four percent. If, on the other hand, minus signs were dominant after four months, the majority of cases continued to decline until the fourth quarter.
The record for the Nasdaq 100 is even more impressive. The broker RoboMarkets has calculated that the tech barometer maintained its 200-day line at the end of April and was more than ten percent up compared to the start of the year. In similar years, the May-October span was also positive 90 percent of the time. In the past almost 30 years, there were only minus signs in 2012, with the losses of three percent being manageable.
What all this means for you
What is the conclusion now? Nobody should change their entire depot just because of seasonal influences. Statistical signals are a piece of the puzzle when making an investment decision. No more and no less. Another important aspect is often forgotten: If you only examine the index level from the beginning of May to the end of October, you are only looking at two points in time. But a lot can happen in between.
Our evaluations of the Nasdaq 100 show that even in good years, the index often corrected by more than ten percent, only to then make up for the losses. Means: In 2023 it is important to have patience and enough cash ready to get in when the opportunity-risk ratio is right. There are corrections every year, and you have to take advantage of them. “The correction could take place in 2023 when the pain trade has come to an end,” says Rise. Maybe it was already the case with 16,000 points in the Dax.
