“The first principle is that you must not fool yourself—and you are the easiest person to fool.” Richard Feynman, American theoretical physicist
Buckle up, as the trigger points for one of the most well-known investment axioms, “Sell in May and go away,” is nearly here. This gets a ton of play in the media, as the six months starting in May are indeed the worst six consecutive months on the calendar historically. The S&P 500 has averaged only 2.1% over those six months and moved higher nearly 66% of the time.
Let’s be clear, up 2.1% might not sound like much, but it is still an increase. Also, we do not advocate blindly selling due to the calendar. But it is worth being aware of this calendar effect, as you will hear a lot about it over the coming weeks.
It Hasn’t Worked Lately
This time a year ago, many were expecting the big rally in April to roll right back over and a big summer bear market would rule, well, instead we saw the strongest ‘Sell in May’ six month rally in history. In fact, make that nine of the past 10 years stocks gained during this historically bearish period. We were one of the few places a year ago that expected to see a big rally, as we discussed in Why We Think You Shouldn’t Sell In May.
Taking this a step further, the next three months have been extremely strong lately.
Think about these stats:
- The S&P 500 in May has been higher 12 of the past 13 years
- The S&P 500 in June has been higher nine of the past 10 years
- The S&P 500 in July has been higher 11 years in a row
Wow is all I can say there.
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It Is How You Start That Matters
It is worth noting that if the year is positive going into these six months things do much better. And if the S&P 500 is up more than 4% for the year (like this year likely will be), the next six months go from an average return of 2.1% to 4.4%. The flipside is some of the worst ‘Sell in May’ periods in history took place after a bad start to the year.
Under President Trump, This Is Normal
Pick a reason why, but stocks under President Trump have been quite weak early in the year, only to bottom in the spring and rally the rest of the year. We think this year could be following this template.
The bottom line is we don’t think you should Sell in May this year and we’d be open to a continuation of the bull market we’ve been in for more than three years now. For our latest thoughts on everything happening out there, be sure to watch our latest Facts vs Feelings. This one was extra special, as we went to the McDonald’s that Warren Buffett goes to! Did we see him? You’ll have to watch!
For more content by Ryan Detrick, Chief Market Strategist, click here.
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