Source: Golden Ten Data

Although many investors are worried about a sell-off this summer, the stock market may actually continue to rise. Overall, summer isn't worth criticizing, and strategists point out that an underappreciated factor is linked to strong gains: this is an election year.

Historically, from Memorial Day to Labor Day — which is the summer of the stock market — the stock market performed better on average.

“The 'sell in May' idea sometimes makes people think summer is weaker than usual,” said Liz Ann Sonders, chief investment strategist at SCHW.N. “For about two-thirds of the time, the market rises, and one-third of the time, the market falls. The market has had some pretty good gains.” And that doesn't include the upcoming November 5 presidential election.

According to the financial intelligence firm CFRA, the average increase in the S&P 500 index in summer since 1945 was 1.6%. The majority of the year's performance was positive. However, in the 19 years with the presidential election, the S&P 500 index performed better, with an average increase of more than 3.7%, and about 80% of the time.

Bank of America (BAC.N) strategists pointed out on Friday that when the S&P 500 index rises in the first 100 trading days of the presidential election year, the rest of the year is usually strong. At 93%, the S&P 500 rose 10.1%.

The 100th trading day was Thursday. The stock market declined on that day, but since January 1, the S&P 500 index had risen 10.44% as of Thursday's close.

While history is clearly not the only guide to the market, there are other reasons why the summer sell-off may not be as drastic. First, companies have learned to deal with higher interest rates. The company's balance sheet is stable, and profits are growing. Oil prices are under control, and it seems that OPEC+ will maintain the status quo for now.

The obvious risk factors are rising inflation and high interest rates. A hot manufacturing report shook the stock market on Thursday, and investors feared that if the data continues to be strong, this will mean that the Federal Reserve will keep interest rates high or even raise interest rates again. The Federal Reserve's next interest rate announcement will be issued on June 12.

Sonders warned that there are real concerns in the market. If inflation is not controlled, bond yields may continue to rise and the stock market may sell off. “To some extent, the bond market still dominates,” she said. The market declined as 10-year Treasury yields rose, and vice versa. The 10-year Treasury yield reached a high of 4.5% last week, compared to 4.47% on Friday.

Sam Stovall, chief investment strategist at CFRA, said that the market may fluctuate this summer, but may wait until the fall for another round of correction, after experiencing a 5.5% reversal in April.

By May 15, the stock market had recovered. Historically, this slight sell-off will be followed by another sell-off in three to four months, “because we didn't actually recalibrate the situation through the first sell-off,” he said. He expects the stock market to fall again this year, but there will be no “new bear market or deep adjustment.”

Stovall said the best performing market segments in the summer were usually defensive, such as the healthcare sector. Since 1990, biotech has risen an average of 7% over the summer, making it the best performing S&P 500 sub-sector, according to CFRA data. Semiconductors also performed well, rising 4.9%, followed by fertilizers and agrochemicals, which rose 4.7%. Medical devices rose 3.5% during this period, and healthcare facility stocks rose 2.8%.

The worst performers were airlines and casinos, which fell 3.2% and 2.4%, respectively. Luxury goods also underperformed, losing 2.3%.

Stovall said that in the face of uncertainty this summer, he will focus on defensive sectors, but also on companies that pay stable dividends, such as utilities.

Sonders anticipates an increase in unrest ahead of the elections this fall. As September approaches, watch out for the fluctuations associated with election uncertainty, this month has historically been the worst month of the year. This uncertainty is likely to be a big catalyst and continue into the fall.