Key Takeaways
• The May through October period has historically been the weakest six months for equities.
• However, in recent years the six-month stretch has seen higher equity prices.
• This year, with stocks up significantly from the December lows, we advise more caution than previous years.
“Sell in May and go away” is probably the most widely cited stock market cliché in history. Every year a barrage of Wall Street commentaries, media stories, and investor questions flood in about the popular stock market adage. This week, we tackle this commonly cited seasonal pattern, and why some seasonal weakness could make sense in 2019.
“Sell in May and go away” began in England originally as “sell in May and go away until St. Leger’s Day.” The saying was based around the St. Leger Stakes, a popular horse race in September that marked the end of summer and a return of the big traders and market volume.
The Worst Six Months Of The Year
“Sell in May and go away” is the seasonal stock market pattern in which the six months from May through October are historically weak for stocks, with many investors believing that it’s better to avoid the market altogether by selling in May and moving to cash during the summer months.
As Figure 1 shows, since 1950 the S&P 500 Index has gained 1.5 percent on average during these six months, compared with 7 percent during the November to April period. In fact, out of all six-month combinations, the May through October period has produced the worst average return.
Taking things a step further, we found that stocks pull back from peak to trough an average of 11.1 percent during these worst six months. With the S&P 500 up 25 percent from the December lows, we do think the potential for a correction of that magnitude is possible.