The age-old stock market adage has rang so true over the past year.  The notion of “sell in May and go away” is based on the historical trend of relative underperformance by stocks during the period from May 1 to October 31.  Of course, the flip side of this adage is the historical trend of relative stock outperformance during the period from November 1 to April 30.

It has been a November to remember. Following a three-month slide from August to October that saw U.S. stocks decline by more than -10% and the 10-Year U.S. Treasury yield jump by more than a percentage point (ouch and ouch), capital markets roared back to life this month.

For more than a decade, the U.S. stock market has been the place to be for global equity investors. But as we continue to emerge from the inflationary induced bear market over the last two years, developed international and emerging markets may be worth a closer look.

Capital markets have had a remarkable run in recent weeks. After bottoming at the end of October, the S&P 500 Index has soared roughly +10%. The 10-Year U.S. Treasury yield has also plunged by more than a half percentage point since recently peaking at 5.00%, driving a comparable nearly +10% bounce in long-term U.S. Treasuries. Given these head turning gains for both stocks and bonds over such a short-term period of time, it is reasonable to consider what we should reasonably expect from here between now and when many across America are carving turkey for their Thanksgiving Day feasts.

Just over a week ago, both stock and bond markets were long overdue for a bounce. And bounce they have. Just like a slingshot, the further and deeper capital markets pulled back through late October, the greater the energy released once the upside rally finally arrived. In the wake of this recent capital market burst, it is worthwhile to evaluate both where we stand today and what we can reasonably expect in the weeks ahead through the end of the year.

It’s been a haunted ride for capital markets over the last two years. And just when it looked like the horrors were finally coming to an end this past summer, the last few months have seen the stock and bond market demons rise again. While a new dawn may still lie ahead for capital markets in the coming months, here are a few scary risks confronting investors today.

The volatility across capital markets continues. Following a great summertime stretch, U.S. stocks have been tumbling to the downside since the start of August. As for the bond market, it was just three months ago in mid-July when the 10-Year U.S. Treasury yield rallied its way back to 3.75% before fast tracking its way up to 5.00% in the time since. While the fundamental case for why stocks and bonds may see better days ahead – strong economic growth, persistently tight labor market, declining inflation pressures, modest inflation expectations, improving corporate earnings, widening corporate profit margins, and historically attractive valuations (outside of the so called Magnificent Seven stocks) – the fact remains that capital markets remain under steady pressure during this historically challenging time of year from early August to mid-November from a seasonality perspective. As a result, it is worthwhile to take a look from a technical perspective by more closely examining the battle lines across capital markets.

Global financial markets are shrouded in uncertainty, and the risks to the downside remain pronounced. Stocks continue to waver amid a difficult stretch dating back to the end of July. And bond yields continue to spike to levels last seen nearly two decades ago. While it is reasonable that investors may wish to recoil amid the swirling geopolitical and market risks, drawing back and taking in the views across the capital market landscape provides constructive reasons to stay the course.

The world was shaken this past weekend by the sudden and unexpected outbreak of war in Israel. As we continue to watch closely as the geopolitical and humanitarian crisis unfolds, it is also understandable to wonder about the potential impact on capital markets going forward. And history provides a useful guide to our understanding of what to expect from here.

The period from mid-August to mid-November is a notorious time of year for capital markets. The pithy investment strategy “Sell in May and go away” is based on the idea of avoiding this stretch of time of year in stocks and picking back up after Halloween. And 2023 has been no exception in this regard. While U.S. stocks had a rousing summer through the end of July, the more than two months since have been particularly rough not only for stocks but even more so for bonds. How much lower should we reasonably expect stocks and bonds to go from here?