Since the start of the 2019 year our Stock Market has performed well with a return of 13%, the market also hit a new high since the GFC.
However, historically we tend to see the market sell down over May and into June with a recover in November. Given the strong run in the market so far this year we would not be surprised if we see the market pull back in the coming months.
There are a number of reasons why this happens,
· In Australia we see some tax loss selling in May and June to get ready for the end of the financial year.
· In the US, it is due to mutual funds ending in September, which often prompts tax-related selling.
· In the UK, it seems to be linked to agricultural merchants having to sell shares.
Historically August or September are the weakest months on the ASX, while the market tends to rally in October, November, December and January.
This has been observed since 1936 and studied since 1980 in more detail, it was found that this trend is common in most years.
Although I would not look to trade on it I feel it is necessary to understand that although share prices may fall it is not necessarily due to companies under performing.
Leading into an election this month I expect May will be tough on investors and I expect some volatility in the coming months.