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City View: So do we sell in May and buy again on Leger day?

Byline: Nevill Boyd Maunsell

Sell in May, they say. This year a good number of people have been doing just that.

Amid all the gloom now swirling around it is hard to remember that only three-and-a-bit weeks ago, on April 27, both the 100-share Footsie and the All-Share closed at their highest levels since July, 2002. It is equally hard to remember that the stock market hit its low point for this year so far on March 24.

The stirring bull run of 2004 lasted just 34 days, including weekends and Easter.

It raised the Footsie by just six per cent and the All-Share by a fraction less. Just over half that gain has vanished in the miserable month of May.

You might conclude that the market is just going round in circles, as it does most of the time, waiting for something to give it a new impetus one way or the other.

Unhappily you might be wrong. We have got into one of those perverse phases where bad news is bad news and the markets treat good news as bad news, too.

The bad news is plain to see -things going from bad to worse in the Middle East.

A rocketing oil price that OPEC seems to lack the physical capacity to bring back to earth. Rising interest rates at home and, worse, the prospect of rising interest rates in the States.

All of that is grotty enough in itself.

But it is also the wrong kind of bad news for the stock market, the kind that generates uncertainty.

The good news that makes everything worse still from the markets' point of view comes from the American economy.

The recovery there has reached a point where it has created new jobs two months running.

This American recovery is what will eventually lift the stagnant parts the world out of the mire and at the same time generate the rising corporate profits needed to bring stock markets everywhere to life. But the rising job numbers are precisely the signal that the Fed is waiting for.

The US markets have become convinced that their interest rates are going up sooner rather than later.

Starting from the present one per cent -a crisis rate in any country -it can hardly be otherwise.

Just the same, the prospect of any increase has rattled an already twitchy market.

Bonds, touted as a safe haven for investors who are scared of shares, have taken a dive. US Treasuries have fallen by more than seven per cent since the end of March.

British gilts have fared better, but far from well. This is one of those moments when it seems there is nowhere to hide.

The underlying hazard is that the Middle East and oil prices will snuff out the American recovery -and the British one, come to that -before it has time to work its magic.

There is a persuasive argument that it shouldn't because the cost of oil is less critical than it was to developed economies. We shall see.

As to the 'sell in May' jingle, the other half is 'buy again on Leger day'.

This year the St Leger will be run on September 11.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:May 21, 2004
Words:534
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