This dip is merely a mid-cycle slowdown
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The st Leger, the 234-year-old horse race run in September, frames that British adage, "sell in May and go away until St Leger's day". This implies that we don't buy equity markets over the summer when volumes are low and prices likely to fall. With the season over and everyone back at their desks, markets are meant to pick up. Not so this year, as the FTSE 100 actually rose approximately 2.75 per cent during this period.
Across the pond, some would steer clear of equities from Labor Day until Halloween. Lehman collapsed in September 2008 and the world trading system fell apart. September 2002 saw a bear market low. The 1998 financial crisis and the 1987 crash were September and October events. Not so last year, as the S&P 500 actually rose approximately 6.4 per cent during this period.
Consolidate both notions and our asset allocation would be consigned to low-yielding cash for at least 6 months of each year. Historic market wisdom and macro-data can give us some measured insight, but not the basis for our market outlook or investment strategy.
For sure, worries about the strength of the global recovery did mount over the summer and are unlikely to recede quickly.
US consumers aren't spending enough, banks aren't lending as politicians would like and Chinese policy makers remain sensitive to signs of overheating. However, recent data suggests that the major advanced economies are experiencing not much more than a mid-cycle slowdown.
Global markets have begun our New Year on a positive note. Risk assets have bounced from their lows, with a fair amount of bad news priced in. There is scope for further gains through year-end but we should expect the choppy pattern to continue, powered by worries about the health of the world economy.
As an active market participant, I have a plan for the coming months. I will maintain a balanced mix of equities, bonds, funds, ETFs and cash. As we see a two-speed recovery, I will maintain a modest bias to emerging over developed countries and currencies.
I am sticking to my strategy of trading the ranges in those assets that I have spent time getting to know and follow closely. I will keep looking for the market dips to add to my core positions and for the mini-rallies to take some profits.
Overall, I plan to maintain my overweight stance on equities and a rather positive outlook.
Paul Mann is head of Bank Hapoalim's UK private banking division. firstname.lastname@example.org