Summer Rally Defies Pessimism as Bulls Stampede into Labor Day

September 10, 2012

Equity markets were positive in August for the first time in three years, capping a threemonth run of success and laying waste to the notion that investors should "sell in May and go away". 
-Douglas Cote' chief market strategist, ING

Equity markets were positive in August for the first time in three years, capping a threemonth run of success and laying waste to the notion that investors should "sell in May and go away". Notably small-cap stocks surged nearly 4%, a sure sign of a new appetite for risk. Those who tried this timing strategy not only missed out on the summer's positive returns but were also penalized with a bill for transaction costs and a now-higher price to get back into the market.

The problem for investors is that it is much easier to sell in the face of global risks than it is to reinvest. Today, the highest-profile risks include:

- The "fiscal cliff", the draconian tax increases and spending cuts that in the absence of other action by Congress will be automatically implemented on January 1, 2013

- The European crisis and the potential for default or exit by Greece, Spain or Italy

- China's hard landing, or for that matter the risk of any of the BRICs slamming on the brakes of growth

- The Iranian nuclear threat and the potential that Israel may unilaterally launch a preemptive military strike.

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