This year, saying “all-time highs” has started to sound like a broken record. Nothing has seemed to rattle the market much in 2021, with volatility at historic low levels. But after the summer lull, things to tend to get exciting again for investors in September in what is historically the worst-performing month of the year, with the FTSE 100 falling on average 1.2%. However, although the average return is bad for the month, about half of all Septembers have positive returns. The problem is that when the market does fall in this month, the falls can be very large.

It is the eternal mystery – the days are long, but the years are short – and 2021 is no exception, with the months whizzing by and the mid-year already here. History will likely remember 2020 as the COVID-19 pandemic year, and 2021 as the recovery year. The health recovery is clearly underway, thanks to vaccines. Yet vaccination rates vary widely country by country. Politics is a factor, along with suspicion about treatments that were developed so quickly. The economic recovery is equally underway, aided by government stimulus. People-facing industries are seeing a return to something like the pre-pandemic normal, although a shortage of workers is slowing the process. And it’s not just workers that are in short supply; everything from semiconductors to bricks are subject to lengthening lead times, with subsequent price rises leading many to fret about the inflationary implications.

With April winding down, you can count on someone, somewhere saying, “sell in May and go away”. That pronouncement is mainly popular because it rhymes, but there is truth behind it. Since 1966 the All-Share index has delivered a total return after inflation of 7.9% on average from Halloween to May Day, but has lost an average of 0.6% from May Day to Halloween – even including dividends. This is because in March & April lighter evenings and warmer days cheer us up, which makes us more willing to take risks such as buying shares. So prices rise to high levels, which are difficult to sustain over the summer. Likewise, in the autumn the darker nights make us gloomier, with the result that prices fall to low levels from which they recover.

There’s nothing like a week-long of selling to get the bullish juices flowing once again. After the S&P 500 set a new all-time high on 25th January, GameStop hysteria seized the market. A relatively small set of retail investors, embracing YOLO (“you only live once”), pushed the shares of the troubled retailer up ten-fold to unsustainable highs, an epic short squeeze that slammed multiple over-exposed hedge funds. Although the frenzy occurred amongst a small group of investors, fear grew that an equity asset bubble had been discovered, and broad selling took over. By the end of January, the S&P 500 had fallen 3.7%. Conveniently, the index closed right on its 50-day moving average. With investors concluding that GameStop was an isolated episode of madness, YOLO was pushed aside by FOMO (“fear of missing out”) and the market embarked on a strong recovery run.

We wish all our clients and readers a very Happy New Year. 2020 was a remarkable year, by any stretch of the imagination, and one I am sure we would all like to put behind us. Looking forward to the next 12 months, we are, by our very nature, optimistic. Widespread vaccination programmes are expected to be in place worldwide by June. Unemployment should drift downwards as many, though not all, workers are called back to work and interest rates are forecast to remain low. Ironically, it is China that will continue to lead global growth. There are risks – global growth could disappoint, and valuations are high, almost predicting perfection. But with a calmer political environment, both in the US following Biden’s victory and the UK following their free trade deal with the EU, we see stock markets returning close to their long-term averages of 8-10% for the year.