Markets follow central banks

Brad Waring, account executive, James Brearley & Sons
Brad Waring, account executive, James Brearley & Sons
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Stock market wisdom has it that investors should “sell in May and go away”. The saying suggests shares should be sold this month and the proceeds held until the last quarter of the year, when they should be re-invested.

Like all adages there is some evidence to support this; in America in the past three years it would have held true if you had sold shares in this month. However this year it could be different.

Despite only hints of recovery in most developed countries the steady rise of the consumer goods and pharmaceutical sectors shows investors will buy shares in these sectors, regardless of the state of the economy.

However looking at the market as a whole over this period, evidence suggests that share prices are currently more influenced by liquidity, or Quantitative Easing.

Significant US share price declines in the last couple of years have been more correlated to the Federal Reserve, or American central bank, pausing its money printing operations. As poor data is the normal catalyst for such money printing, it is this aspect that is driving stock markets both in America, as well as in the UK, more than any historical adage.

In essence it is central banks, and their wish to control economies, which seem be driving markets above all else.

“Investing in stockmarket based investments may not be right for all investors. You should consider carefully and/or seek professional guidance before investing.’’

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