“History doesn’t repeat itself, but it often rhymes.” Mark Twain
So much for Sell in May! With a day to go, we are looking at potentially the best month of May for the S&P 500 in 35 years. As we noted at the start of the month, the odds favored a big rally in May and fortunately that has played out so far. Many were worried that stocks were green in 11 of the past 12 years, but it looks like history rhymed once again, to quote Mr. Twain.
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What now? Well, the good news is few months are better for the bulls than a strong month of May. We looked at all 12 months and what happened after a 5% monthly gain. Well, May has never been lower a year later and up nearly 20% on average, something for the bulls to smile about for sure! Additionally, a year after any 5% monthly gain saw stocks up 13.7% on average and higher more than 84% of the time.
Here are the six times the S&P 500 gained at least 5% in May and what happened next. You can see stronger returns across the board and a year later up double digits five of six times. Not bad. A 5% gain in May also improves the picture for the historically weak month of June. After a big May gain, June is higher five out of six times and up 1.2% versus and average June return of 0.7%.
Lastly, we’ve noted many times how historically bearish sentiment was last month and why from a contrarian point of view that could be quite bullish. Well, better news on trade and a very strong earnings season helped us bounce back at a historic pace. Whereas even the biggest bulls were calling for a recession or drastically cutting their S&P 500 targets back in April, we’ve definitely seen a shift in sentiment after the nearly 20% rally off of the April lows.
Just one such example: after 15 consecutive weeks, the AAII Sentiment Survey finally had more bulls than bears last week. We looked at what happened after previous long streaks ended and the good news is the bulls remained in control. This is a fun one, as seven of eight times saw stocks up at least double digits. The one time it didn’t work? Yep, 2008 and a total market crash. So there is something for everyone here, but we don’t see any reason to see a once-a-lifetime crisis this time around and we’d file this under the ‘reasons to remain bullish’ category.
Lastly, I joined Joe Kernan on CNBC’s Squawk Box yesterday morning to discuss many of these concepts. Check it out and thanks for reading!
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