Ken Roberts: Sell in May and go away
There’s an old stock market saying that refers to the seasonal tendency of the stock market known as “sell in May and go away.” I know I write about it almost every year, but I thought that this year might be an interesting year to take another look at it.
Actually the original saying was, “sell in May and go away and don’t return until Saint Legere’s Day.” The saying goes back to Old England when the stockbrokers took the whole summer off and the stock market was dead during the summer months. Saint Legere’s Day was a very important day because the final horse race of the season was held on that day. After the horse racing season was over the stockbrokers could finally get back to work and the stock market usually rallied.
On average the stock market performs better during the November through April period than May through October. An interesting note here is that while this has been true over long periods in the market, over the last five years the S&P 500 has performed better in the May through October period than the November through April time frame.
Normally May is a positive month for stocks and the S&P 500 has averaged a return of 0.2 percent for the month of May over the long haul.
There’s another stock market cycle that is analyzed which is known as the Presidential cycle. Typically the mid-term years of a president’s term are the worst for the market as the administration may make changes that impact the market without being overly concerned about market performance. The market has a tendency to perform better in the year prior to the election as the administration will be focused on market performance as a way to generate votes.
The S&P 500 has declined an average of -0.9 percent during the month of May during the mid-term of a presidential cycle. The Dow Jones Industrial Average and the NASDAQ have similar performance for the month of May. The Dow Jones declines an average of -0.7 percent during mid-term Mays and overall drops only -0.02 percent in the month of May. The NASDAQ usually rises 0.9 percent during May, but has fallen an average of -1.2 percent in mid-term years.
Most investors should invest for the long haul and not be overly concerned about seasonal tendencies. The market will go through cycles of volatility routinely.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.