Sell in May and Pray?

by BCA Research
Financial Sense

Asset volatilities tend to move in tandem and rarely deviate for prolonged periods. While commodity, equity and fixed income volatilities have subsided substantially since the mid-February mini riot point, foreign exchange volatility is moving in the opposite direction. This is disconcerting for global equity markets (see chart) given the decade-long close inverse correlation and represents another non-confirming indicator of the latest “risk-on” phase.

Tack on the ongoing global trade struggles and a durable market advance from current extended levels is a high-risk, low-reward proposition. China’s greenshoots are a welcome development, nevertheless, we remain skeptical that this reflationary period will prove more than transitory as it has taken a progressively larger injection of liquidity in order to move the needle.

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