“Sell in May and go away” is a well know Wall Street adage that warns investors to sell their equity holdings in May to avoid the seasonal decline of the equity markets. Will the adage prove to be true in 2014? After the outstanding returns of the last 18 months, is the U.S. stock market vulnerable to a serious correction?
We think that the risks for equities have increased and investors should be extremely cautious in this market. As we noted in previous blog articles, the sector rotation has started a week ago and a correction is under way in the previous market-leading sectors, such as biotechnology and gold. At the same time, defensive investments, including utilities and treasury bonds are in favor again. Geopolitical risks may be on the rise, as well, especially if the military conflict in the Ukraine escalates in the coming weeks.
Severe corrections are under way in the biotech and gold sectors:
At the same time, defensive sectors, such as utilities are gaining favor with investors: