Source: Jin10 Data
The S&P 500 index performed strongly in the just-concluded May, indicating that the market is resisting the strategy of "selling in May and walking away", which is particularly difficult to implement in election years.
$S&P 500 Index (.SPX.US)$Just created the strongest May performance since 2020. Investors may want to know if this suggests a good sign for a summer rebound as the market attempts to defy a long-standing Wall Street adage of "Sell in May and go away".
Ed Clissold, chief strategist at Ned Davis Research, said in an interview last Friday, "Momentum dominates price, and the strong performance in May increases the likelihood of a significant rebound this summer."
Of course, macroeconomic factors including inflation reports, employment data, Federal Reserve official comments, and other events will also affect market returns, "but the overall momentum of the stock market is in a relatively stable upward trend," he said. "In other words, unless fact proves otherwise, the market will still be in a bull market."
Clissold and others point out that if the rally in US stocks continues, it would also be in line with the typical pattern of presidential election years.
The S&P 500 Index rose 4.8% in May, the strongest performance for the month since recording a 5.3% gain in 2009 when the stock market rebounded from the financial crisis lows of March that year. The Dow Jones market data shows that the S&P 500 Index typically falls by an average of 0.1% in May, which is usually the second worst month of the year for the index (see chart below).
Historical performance of the US stock market helps explain the saying "Sell in May and go away." Historically, May to November is the weakest period for the market, but analysts and investors say this saying oversimplifies the phenomenon.
In a report earlier this week, Clissold pointed out that since 1950, the S&P 500 Index has a 77.8% probability of rising from April 30 to October 31 in a US election year, which is usually the year with the largest market increase during a president's four-year term. The median increase in the index during this period in election years is 3.3%, the second-best period of performance in the entire election cycle (see table below).
Clissold warns that a close election, which may not reveal a winner until later in the campaign or even later, could hurt the market. He noted that in election years, the market tends to perform best when the results are relatively clear early in the campaign.
A fiercely competitive election leaves investors unsure of the outcome's impact. He pointed out that in 1996, when Bill Clinton was unquestionably re-elected, the stock market bottomed out in January and rose 20.3% for the entire year. In contrast, because George W. Bush's re-election prospects were uncertain until election night in 2004, the S&P 500 Index fell 1.5% from early that year to October 25, but rebounded 10.7% by year-end.
Clissold said, however, that neither Biden nor Trump faced serious challenges in the primaries, which may have helped curb investors' earlier uncertainty this year.
However, historical guidance for investors is limited. After all, the uniqueness of 2024 compared to other election years is hard to ignore. Last Thursday, Donald Trump became the first former US president to be convicted of a felony, having already been the first former president to face criminal charges.
It remains unclear whether this will damage or boost his chances. Meanwhile, the showdown between Biden and Trump will mark the first time since 1956 that a US presidential election has seen "rematches" of candidates, as well as the first time since 1892 that a former and current president have competed for the White House.
Clissold pointed out that regardless of the presidential election cycle, the "Sell in May and go away" strategy has not been particularly effective in recent years. Since 2012, the S&P 500 Index has risen 10 times, with a median gain of 3%. But he said this does not mean investors should ignore the phenomenon, which has been proven by data since 1950.
Steve Sosnick, chief strategist at Interactive Brokers, said in a report earlier this week that it is too early to judge whether the "Sell in May and go away" strategy is meaningless this year.
"One popular thing I've heard recently is that the 'Sell in May and go away' strategy doesn't work this year. In fact, it is still too early to draw conclusions so far," Sosnick wrote. "We will have to see how June performs to determine whether 'Sell in May' is effective."
Editor / jayden