Most British people couldn't care less about baseball. But if you're thinking of investing in the US stock market, some would say you should.
Bear with me. The New York Yankees played the Philadelphia Phillies in the baseball World Series last night. Now, if you look back to when the S&P 500 began trading in 1928, you'll find that the index has done best over the final two months of the year when the Yankees reached the World Series – and lost. On those occasions, returns have averaged 3% over November and December. On the other hand, in the 24 years when the New Yorkers have won, returns fall to 2.16% on average in the last two months of the year.
The 'bad' news is that the Yankees wrapped up the title last night. So are US stocks set for a ropey end-of-year?
Sure – but you'd be daft to pin it on a random correlation with the World Series result. There are very sound reasons to expect US share prices to falter in the near future.
Take yesterday's stock market action. The S&P soared 1.3% at the start of play on hopes that recovery will continue. But, true to form of late, some of the economic and company numbers weren't as high as hoped. Fewer businesses than expected hired workers in October. Then Cisco Systems' first quarter profits emerged lower than forecast.
By the closing bell, the S&P had dropped back to end scarcely up on the day. That pretty much sums up US shares at the moment. There's a lot of optimism factored into prices, and that leaves investors very vulnerable to disappointment as harsh reality hits home that the economic recovery isn't really happening.
Buying into the US right now is fraught with danger – whatever happens on the baseball field.
Published in Blog
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by
David Stevenson
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