May's Taco market lull may well be the calm before the storm
The final classic of England's horse racing season is the St Leger's Day race at Doncaster, on September 13 – made famous by the stockbroker's mantra, 'Sell in May and go away, come again St Leger's Day'. This referred to well-heeled brokers taking long summer holidays when trading was subdued and left in the hands of junior dealers.
Mantras like these recognise that markets show a definite seasonality, with quiet summers giving way to an often-exciting October as money movers return to work. These indicators can be combined with more traditional forecasts of the near-term future, made by looking at the near-term past and assisted by our experiences.
The near term says markets have had a pretty good May. Pretty much anything sounded good after the
shock of April 2 , when US President Donald Trump announced his swinging tariffs on friend and foe alike. Indeed, a cut in additional tariffs on China to a
mere 30 per cent is surely good news after the 145 per cent rate.
In some ways, Trump's extreme negotiating technique sounds smart in making us think 30 per cent is good – when it still essentially hurts all but the highest added-value trade.
May was a calming month that saw most of the economic metrics announced, such as US employment, inflation and interest rates, being largely supportive. Each small piece of 'good news' saw equity markets ticking up. Investors were starting to believe in what has been described as Trump's
Taco trade – Taco being short for 'Trump always chickens out' – meaning whatever he says is soon reversed. Yet we should remember the massive tariffs have
only been postponed , not cancelled.
03:53
China, US slash most tariffs on each other after first round of trade talks
China, US slash most tariffs on each other after first round of trade talks
To gain a little insight into what the summer might hold for investors, one indicator is the wisdom of the crowd, of which the best illustration is the late US economist Jack Treynor's bean jar experiments. In one, the professor filled a jar with 810 beans and asked his class to estimate the number – the mean estimate was 841, and only two of the 46 guesses were closer to the true value. The conclusion? The crowd is better at estimating a value than an individual.
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