Sell in May and go away' is an old market adage that has considerable basis in fact. Over the past 63 years, the average six-month price gain for the S&P 500 from May 1st through October 31st was 0.7%, compared to 6.6% from November through April (based on data from Ned Davis Research). The catch is that one-third of the time, May-October returns beat November-April returns. We expect the 39% annualized returns from last November to far exceed the returns over the next six months (see Weekly Chart), but our judgement is that the short-term downside risks to stocks do not justify the challenge of trying to time a tactical move to cash or short-term bonds. Our reasons are as follows:

David Fuller's view This is useful data which increases our perspective. Inevitably, there are also important exceptions, as Rod Smyth and colleagues point out, not least the extraordinary monetary stimulus, led by but by no means limited to the current policies of the US Federal Reserve, the Bank of Japan and the European Central Bank.

Technically, global stock markets experienced a number of reactions and consolidations during the three months from February through April. This action was mostly consistent with the overall bull market environment that we have enjoyed since 2009.

However, since the beginning of May leading stock markets from ASEAN Indices to Wall Street have surged once again. These latest momentum moves are now somewhat overextended relative to their trend means, approximated by the rising 200-day moving averages (see chart review below). Consequently, the current rallies could easily give way to another phase of reaction and consolidation before long.

However, the combination of extremely accommodative monetary factors, improving investor sentiment and momentum buying following the resumption of many upward trends could first result in a further spike to the upside. That would most likely be followed by a bigger reaction and more lengthy consolidation and mean reversion than we have seen mid-November 2012, possibly triggered by a reduction in the current monthly amount of QE provided by the Fed. I discussed this in more detail in the Audio.

Lastly, I think subscribers will also be interested in The Weekly View's insightful comments on China.