Sell in May and Go Away? Why That Could Be a Costly Mistake This Year
There’s a very old Wall Street adage that gets trotted out in the financial media every year about this time…
Sell in May and go away.
Most Liberty Through Wealth readers have probably heard it, though that’s only the first half of the adage. The second part instructs investors to “come back on St. Leger’s Day.”
The saying is centuries old. And for those who are unfamiliar, St. Leger Day is the date of a classic horse race in England that’s run every September. London bankers and merchants would sell their shares before summer arrived and retire to the country. In late September (after the big race), they’d return to the city and the stock market.
In modern times, it stands for Wall Street traders trimming their positions in late May before heading to the beach for the summer.
And over the years this saying has held up well enough…
In the 74 years from 1950 to 2024, the average gain in the S&P 500 from November 1 through the end of April has been about 7%. The gain over the other six months is just below 2%. Keep in mind that the average total annual gain for the S&P 500 is around 9% since 1950, so the bulk of that annual gain happens during the November-April timeframe.
In dollar gains, the difference is dramatic. Investing $10,000 in 1950 in the S&P 500 in just the May-October months would have resulted in a net gain of $3,300 by 2022. Investing the same amount in 1950 in just the November-April timeframe would have brought you about $977,000.
In addition, there’s a huge lull in trading volume every year during the July-August period. That’s because institutional investors like mutual funds, pension funds, and banks tend to trade more heavily during the last few months of the year.
This Year May Be Different
The question today, of course, is, will that pattern hold up this year?
If so, it would make sense to cut some risk from your portfolio in May before summer doldrums, low volumes, and uninspired trading take hold. And then return to a risk-on position when autumn breezes begin to blow and the leaves start to turn.
(In the U.S. this trading idea has also come to be known as “The Halloween Strategy” – that is, start buying stocks again when you see jack-o’-lanterns.)
But I think this year may be different.
First of all, those seasonal trading patterns have faded a bit in recent years due to cultural shifts and technology. Few investors take the whole summer off these days. And you no longer need to be at a desk in downtown Manhattan – or have a broker there – to buy and sell stocks. Today, most people can trade on their mobile phones.
And while April has historically been very good to investors, this year saw very difficult market conditions during the month due to the initial rollout of President Trump’s reciprocal tariffs.
And May, which historically has delivered anemic gains, has so far been outstanding, with the S&P 500 up almost 7% since April 30.
Better yet, if the White House continues to negotiate trade deals over the next few weeks and months, and we get significant tax reform out of Congress, this summer could look a lot different than the chart above.
What About Long-Term Investors?
Finally, if you’re in the market for the long term – as most smart investors are (unless they are very near retirement) – seasonal patterns mean a lot less.
And with so many transformative technologies – from artificial intelligence and robotics to genomics and edge computing – now surfacing in the economy and the stock market, savvy investors will want to be invested and stay invested in companies that provide or employ them.
Perhaps a wise strategy is to reexamine your portfolio by the end of May, sell some of the positions that haven’t worked and put that money to use in assets with better potential.
I would recommend putting those funds into stocks associated with the technologies I listed above.
This article was originally published on this site
