In the realm of financial markets, May occupies a distinct position, divergent from other months. The axiom “Sell in May and Go Away” is one often cited by traders and investors alike. This adage proposes that the market’s performance tends to wane during the summer months spanning May to September. However, it’s crucial to note that “Sell in May and Go Away” does not necessarily forecast a downturn in the market during May itself.
The strategy behind “Sell in May and Go Away” advises traders to consider liquidating their stocks in May, reallocating the funds into secure holdings, and reentering the market come November. The rationale behind this approach is rooted in the belief that, since market fluctuations are typically subdued during the summer, staying on the sidelines can safeguard capital.
Historical analysis from Corporate Finance Research has generally lent support to the “Sell in May and Go Away” adage since 1945. The S&P 500 Index, for instance, has historically exhibited a six-month average gain of 6.7% from November to April, contrasting with an average gain of approximately 2% from May to October. Moreover, the S&P 500 tends to yield positive returns about two-thirds of the time from May to October, a figure that escalates to 77% from November to April.
Following a robust performance in the initial months of 2024, boasting nearly 9% year-to-date gains, the S&P 500 saw subdued trading activity over the preceding month.
Kevin Matras, in his newsletter, alludes to a theory proposed by Yale Hirsch of the Stock Trader’s Almanac, suggesting a correlation between market behavior and the term of a US president. Historically, the third year of a presidential term has witnessed favorable market performance, a trend evident in 2023’s market highs.
However, it’s important to acknowledge that the “Sell in May and Go Away” strategy may not always yield desirable outcomes and may not be suitable for all investors. Long-term investors, for instance, may opt to disregard short-term market fluctuations inherent in this approach. Additionally, certain industries may fare better during the summer months than others, potentially presenting profit opportunities that would be missed by investors who opt for a complete market exit during this period, particularly given the dynamic economic landscape.
With the US elections looming six months away and the Federal Reserve likely to commence rate cuts in September, the US stock market stands at the precipice of volatile trading sessions in the near future.
According to reports, analysts at Bank of America advise against adhering strictly to the “Sell in May and Go Away” mantra, citing statistical data indicating substantial market rallies during presidential election years. “The S&P 500 typically experiences a summer rally, with presidential election years often witnessing significant summer surges,” notes the bank.
