Sell in May and Go Away? Not So Fast, Cowboy.

May 29, 2019

 

An old axiom about the stock market is “Sell in May and Go Away”.  Then buy stocks back in November.  Although May 2019 was a particularly poor month for stocks, this theory, like many other “rules of thumb” should likely be thrown out.  Maybe long ago it made sense as manufacturers would close down and re-tool for an extended period of time in the summer, and that would have an impact on earnings during those months.

 

But with today’s service-based economy, business is not nearly as seasonal as it used to be.  Nor are stock returns that seasonal.

 

Here is a table of the last 16 years of returns of Large Cap US stocks as represented by the S&P 500:

 

The average return over those 16 years for May-October was 3.67%.  That is not worth missing, as it represents a good chunk of the average 9.0% return of the S&P (annualized) for the 16 years. Like most market timing theories, this one fails the test of time.

 

Source: Bloomberg. Courtesy of First Trust. Past performance is not indicative of future performance.

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