Market Beat: Sell in May?
May 26, 2014
For the last couple of years I have written about an old stock market cliché, "sell in May and go away." The saying originated in old England and the full version for you stock market historians was, "sell in May and go away, do not return until St. Leger's Day."
In those days, the final horse race of the season was held on St. Leger's Day, and the stockbrokers took the summer off and did not return to work until the last horse race of the season had been run. There wasn't much activity in the stock market over the summer months in the old days.
So, what are the best moths for stocks and is there a real seasonal tendency? Well, if we look back to 1950 and study the S&P 500, the best month of the year has been December, with an average return of +1.62 percent; 49 Decembers have posted positive returns, and just 15 years have logged negative returns.
The worst month of the year historically has been September, with a return of minus -0.64 percent. Only 29 Septembers have posted positive returns, and 35 have recorded returns in the red.
The December-through-February period has been the strongest three-month timeframe, with an average return of 3.98 percent. June is an interesting month with an average return of minus -0.10 percent, but in the last 64 years, 32 have had positive returns and 32 have had losses, so with the month of June it's essentially a coin toss.
The Dow Jones Industrial average has been around a lot longer than the S&P 500, and with the Dow we can take a look back to 1896 to see if there has been a statistically significant difference between the returns in the winter months vs. the summer months.
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According to a study published in Barron's, the average winter return has been 5.4 percent, and the average summer return was 2.0 percent. That is a difference of 3.4 percent and is statistically significant at the 95 percent confidence level.
A study done at New Zealand's Massey University found that some sectors of the market performed equally over the summer and winter months. Consumer and food industries tend to have a fairly steady performance year round.
Does that mean you should sell in May and go away? There are other considerations, like taxes and the income stream from dividends. There also have been many summers where the market has performed well even though on average the winter months have outperformed.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.