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Facebook shares open 10 higher at 42 but soon fall back to IPO price

Article By: ,  Financial Analyst
May 30, 2012 12:30 PM

I tweeted some stats at the start of May that took up some interest on the cyclical behaviour of the FTSE 100 over the coming months.

 

The stats read that of the past 14 years, the FTSE 100 has finished lower between May and the end of August ten times, with average losses of 7.68%.

Looking at May’s performance this time around already, it would appear the saying “sell in May and go away, come back again on Labour Day” remains a strong proposition.

Historical evidence shows that on average, stock markets are typically bearish in this period as investors vacate for the summer months and reduce their equity exposures.

The FTSE 100 is currently down over 7% on the month, marking May 2012 as its worst monthly performance since October 2008, when the markets were at the depths of the financial crisis.

 

So for now, it would appear that the FTSE 100 looks set to add to the recent historical trend of trading bearishly 11 times out of the last 15 years between the start of May and the end of August.

The question to ask now could indeed be, just how much lower can the FTSE 100 finish this seasonally bearish period?

That said, we cannot discount the fact that there remains key aspects that have the power to lift the markets aggressively.

The prospect that the ECB or Central Banks could inject fresh stimulus into the markets to help lift the gloom and spark a bounce back from these losses – which remains a potential possibility given the rising sovereign bond yields – is still on the table, despite the seeming hostility the European Central Bank has shown to both Spain and broader Europe that it is not their job to bailout banks.

Added to this sentiment is the fact that likely low volumes over the summer – with the Olympic games taking place in London and the Euro 2012 football tournament in Poland and the Ukraine – will mean it may not take much to spike markets one way or another.

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