April 10th, 2012

• Why share prices may come down this quarter?

• Benefit from our own actions

Dear subscriber

This coming quarter we will see a deluge of first quarter results from US-listed companies, while a number of London-listed companies will report annual results.

US companies reporting season is important to UK investors as often the London stock market follows Wall Street trends.

On a ‘macro’-level, in the past, US shares have risen (somewhat) in advance of each new reporting season, often giving back some of these profits due to expectations not being met.

What happened in 2011?

Last year, the S&P 500 peaked on May 2 at 1,370.58.

By early August, it had dropped nearly 20 per cent and was testing support at 1,100...

It took the S&P until last February 2012 to get back to that 1,370 peak.

. . . and 2010?

In 2010, the S&P 500 hit an intra-day high of 1,219.80 on April 26.

By early July, the index hit an intra-day low of 1,010.91. That was a 17 per cent decline — and it took until November for stocks to regain their April highs.

Since the US stock market bottomed on March 9, 2009, the simple “sell in May” strategy has been rather effective the last two years for short-term investors and speculators.

I normally do not spend much time considering a ‘trend’ based on just two recent observations. However, it is a pretty safe bet that we are going to hear a lot more about the “sell in May” phenomenon in the days and weeks to come.

And, I suppose, we can also assume that a lot of short-term investors and speculators are going to have increasing itchy trigger finger poised over the “sell” button.

Is it different this time . . .

With signs that the US economy is apparently ‘picking up’, and following the Fed’s recent statements about QE3 — that it may not be necessary — I suspect that some investors and speculators will be playing it safe and may not even want to wait for a ‘traditional’ late-April/early-May exit point.

This time round, the FED has kept it deliberately vague if and when it will embark on another Quantitative Easing program.

Previously, the easy money from the FED has allowed asset prices to recover quickly helping to boost share prices.

However, once a sufficient number of commentators and investors start to believe that QE3 is unlikely to happen anytime soon, or, at all, share prices of those sectors which have particular done well out of previous two QE programs are likely to suffer, subject to how first-quarter corporate results in the US pan out.

Are shares undervalued or overvalued?

By now subscribers at our sister site Dividend Income Investor.com are reading the actions we are taking to benefit from any possible share price sell-off in the coming months with regards to a small number of high quality dividend paying companies.

Make sure you benefit when a select group of high quality dividend paying companies is historically undervalued. When taking a shareholding in these types of companies you are not only staying ahead of inflation and increasing your income; you will also build up a solid and growing nest egg.

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Till next time

Steven Dotsch
Managing editor
EMAR Publishers
Dividend Income Investor.com
Twitter.com @Investoretire

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