Monday, May 10

The Ibex hits highs for the year and the bond rebounds, has the time to ‘sell in May’ come?

Every year around this time it reappears. It’s that old saying that recommends that when the year has gone well until April, it is best to collect profits and forget about the market until October. This time with the Ibex 35 at annual highs And with the yield on the bond pointing higher, the aphorism resonates strongly.

The old sentence, in English, reads like this in its full version: “Sell in May and go away and come back on St. Leger’s Day”. That is to say: “Sell in May and leave and come back on San Leodegario’s Day”, alluding to a well-known horse race that has been held on October 15 of every year since 1776 at the Doncaster racecourse (United Kingdom), initially organized by the family whose surname is the name of the French saint.

The circumstances in which the fifth page of the calendar opens this year make the question gain more force among many investors. And it is that the Ibex moves at maximums of the last 14 months after having signed up a comeback of 10% so far this year. The fear that a possible setback in the path of economic recovery will liquidate the profits that with so many difficulties they have managed to add also is trading higher.

Bullish margin

In this sense, the experts coincide in pointing out that the potential for a comeback in both the economy and the stock markets is even more than substantial. In fact, the Eurozone has just confirmed its second entry into a technical recession in less than a year. However, precisely because of this, uncertainty persists in the face of the harmful effects that it could have a step back in the health fight against the pandemic or poor execution of monetary or financial stimulus plans.

Here, the main threat refers to a possible mass capital transfer from equities to fixed income. Especially among investors with a more conservative profile who had fled from bonds due to a very low yield that is now beginning to rebound. In the Spanish ten-year papers, which are beginning to appear back to returns of 0.5%, there are maximums of the last 11 months.

Watch out for 2% in the US

If this turnaround in investment portfolios were to be consummated, the stock markets would be left without one of the sources of capital that have been spurring their comeback in recent months. And that at a time when have just started their rotation to positions more value and cyclical, as shared by several analysts and large international firms in their strategy reports for this second quarter.

Strong market hands have come to signal a key level that would signal the arrival of the moment to execute the ‘sell in May’. In the latest edition of the Bank of America Global Survey of Fund Managers, these market professionals indicate that the jump of the US federal bond above 2% of return could lead to a 10% decline for international stock markets.

This is considered by a net 47% of the more than 200 international managers consulted by the prestigious investment bank. However, the nuance comes from the fact that the fall would be greater in those squares that have celebrated the still incipient and fragile economic recovery the fastest. In this sense, it should not be forgotten that while the Wall Street indices are trading in the area of ​​all-time highs, the Ibex 35 -for not going any further- still has 14% left up to its highs prior to the outbreak of the pandemic.

With these premises, Susana Felpeto, director of variable income at Atl Capital, acknowledges that although “it is true that this time always comes, we ask ourselves the saying, the reality is that market expectations point much further”. In addition, remember that, despite the popularity of the sentence, “it is a pattern not as recurrent as other less known.”

Reasons to buy

In his opinion, the evolution of corporate results, the effect on the economy of the European reconstruction funds -which are still pending disbursement-, and Advances in vaccination sow optimism looking to the immediate future. In his opinion, this is not the time to undo positions, but rather to “continue with the strategies deployed taking into account the stops and objectives regardless of the calendar ”.

From the point of view of Sergio Ávila, IG analyst, “The trend of the Ibex 35 continues to be bullish” precisely thanks to the continuity of stimuli from central banks, which “continue to be the engine of the markets.” This is the scenario in which he emphasizes that “there are no reasons to sellNot even despite the fact that we enter a negative seasonal period ”.

In favor of the bullish continuity of the stock markets, including the Spanish index par excellence, Joaquín Robles, analyst at XTB, also opts. However, and despite the validity of his bullish catalysts, he acknowledges that he would not be surprised “See a correction between 5% and 10% during the next two months”.

At this point, Robles points to possible stressors that could trigger this reversal in global benchmarks such as the US S&P 500 and the German DAX, at all-time highs in both cases. Among others, he names the dreaded rise in inflation, Joe Biden’s tax reform, delays in vaccine supplies or the beginning of monetary tightening.

Allies for the Ibex

However, Invertia analyst Eduardo Bolinches points out that “for now they command the prices and speak loud and clear that the structure of increasing minimums and maximums is maintained ”. A very often technical indicator that, “as long as it is not broken,” becomes a “clear hold” in the portfolio, he insists.

As if that were not enough, in the case of the Ibex 35, it considers that the trend indicators are “much more evident”. Specifically, it underlines that the latest highs have opened the door to assault of the index at 9,050 points in the first instance. However, he comments that, on the downside, “any level above 8,700 points is synonymous with absolute tranquility.”

Even if there were short-term declines, Robles points out that “they could give an opportunity to enter into values that have been facing strong resistance in recent weeks ”. Such is the conviction that May will be more time to fatten the portfolio than to lighten it, which continues to indicate as a target for the selective Spanish “levels close to 9,200 points”.

A comeback that this time could count the bank guarantee thanks to “better than expected results in the first quarter”, according to Felpeto. The weight of this sector, which last year was a clear ballast factor for the Spanish index, “now benefits us.” And that the low interest rates that weigh down your generation of margins are still guaranteed.

No tapering in sight

To finish off all of the above in a May that has just begun, analysts remain convinced that the recovery would have to advance much more than now so that the central banks began to consider ‘de-propping’ the economy. “Not before 70% of the population is vaccinated,” Bolinches dares to predict.

The tapering it is still far away. Even if they arrive possible inflation peaks which has already been run to downplay so that the dreaded rise in yields in the secondary debt market is not activated. A phenomenon that is now beginning to appear in Europe, but in the US has been pressuring Wall Street for some time, although without achieving a sufficient impact to slow down your climb without a roof.

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