Source: Finance Association
① Wall Street analysts are questioning the phrase “sell in May and then leave”; ② Since 1950, the average return for the S&P 500 from May to October was actually positive, at +1.7%; ③ with positive returns in the previous first quarter and negative returns in April, the return on US stocks was even higher, reaching 83%.
“Sell in May and go away” (Sell in May and go away) is a long-running stock quote in Western financial markets, and is regarded as a creed by many Wall Street people. It highlights the fact that historically, the six months with the worst performance in the US stock market were between May and October.
Today, despite the overall attitude of the Federal Reserve and Chairman Powell being dovish, the US stock market still performed “not salty” during the first trading day in May. So, is it time to sell US stocks again now?
From a long-term historical perspective, the “sell in May” investment rule is clearly not entirely unfounded. There is a data cable. The six-month period from May to October was indeed the worst relative performance of US stocks in the past 70 years.
But some strategists point out that when you look closely at these data, they're not that bad, and apparently they aren't that bad, to the point where stocks are sold simply because the calendar turned from April to May.
Exiting the stock market is not the best strategy
Adam Turnquist, chief technical strategist at LPL Financial, emphasized that since 1950, the average return of the S&P 500 index over this six-month period was actually positive rather than negative, at +1.7%. Also, if you look back over the past 10 years, this figure will jump to +4.0%.
“Unless investors can seek higher returns in other asset classes, exiting the stock market may not be the best strategy. The average return on the stock market for six months remained positive during the May-October period of the study.” He wrote in his latest report.
Ryan Detrick, a market strategist at Carson Group, also pointed out that in these six months, when the stock market performed the worst in the year, the returns were positive. He further added that May itself was a month of relatively steady stock market performance. Positive returns have been achieved for 9 of the past 10 years, with an average increase of 0.7%.
Tom Lee, co-founder and head of research at the US investment agency Fundstrat Global Advisors, also analyzed the data and found that since 1985, “May's performance was unexpectedly good.”
Lee was one of the few bulls on Wall Street last year. At the end of 2022, he predicted that the S&P 500 index would soar by more than 20% to 4,750 points in 2023. As a result, the S&P 500 index surged unexpectedly last year, and the final price was only more than 30 points away from the target point it set. According to reports, among the strategists tracked by Bloomberg, his predictions were the closest.
He stressed that in the past 40 years, positive returns were achieved 77% of the time in May, but in the case of positive returns in the first quarter and negative returns in April, the return rate was even higher, reaching 83%. Isn't this situation like this year?
US stocks “ended violently” in April this year. Among them, the Dow dropped a cumulative total of 1991.45 points, or 5.00%; the NASDAQ fell 4.41%, and the S&P 500 index fell 4.16%. Previously, the three major stock indexes all recorded five consecutive months of gains.
Are there any exceptions during the President's Year?
Finally, Detrick also found that in presidential election years such as 2024, the stock market often rebounds in the summer before the usual rebound in November. Over the past presidential year, the average increase was 2.3% from May to October, with an increase of 78% of the time.
editor/tolk