“Sell in May, Go Away (for the Summer)” is a popular Wall Street saying that arises from the S&P 500’s historical under-performance from May through October.
Given the host of uncertainties fueling fears of a global slowdown, this could be a year when that adage holds true.
Since many investors vacation during the Summer, trading volume tends to ease and appetite for stocks during the period lessens. That in turn can increase volatility.
Accompanying this year’s Summer effect are an escalating trade war between the United States and China, US-Iran tensions and Britain’s uncertain exit from the EU.
President Trump has added to the tensions by vowing to impose tariffs on all goods from Mexico. In the wake of that action we saw the 1st monthly loss for major US stock indexes this year and 1st May decliner since Y 2012.
Stock rallied in the 1st 4 months of this year, +17.5%, but the S&P 500 reversed in May as hopes for a US-China trade deal faded on pledges for more tariffs from President Trump.
The S&P 500 has declined about 5.6% on the month.
“The fact we had a big 1st months and May has been weak tells us the market is behaving very close to seasonal historical patterns,” said the editor-in-chief of the Stock Trader’s Almanac.
He says the S&P 50 could rebound slightly in June, but he expects weakness from July through October.
Since Y 1950, the S&P 500 has on average gained 1.4% in the May-October frame, compared with 7.1% between November and April. In those 70 yrs, the S&P 500’s performance was stronger from November to April than May to October 65% of the time, according to the data.
He pointed to 44 S&P declines between May and October Vs 15 decliners between November and April since Y 1950. The last S&P May-through-October decline was in Y 2015.
A big decliner in May does not necessarily point to big losses in the Summer. As our data shows that if an investor bought the S&P 500 index at the start of November and sold at the end of April every year starting in Y 1928, they would have chalked up a 4,661.6% gain by 30 April 2019, Vs a gainer of 185% in the May-October frame.
The difference starting in Y 1945 is even more dramatic with a 8,670.8% gainer for November-April compared with a + 101.5% for May-October.
This year, many investors say that concerns about the tit-for-tat US-China trade tariffs will weigh on stock markets far more than typical seasonal pressures.
The path of least resistance is South in here for a while because we believe the trade dispute will go on for some time. But when you have an overwhelming macroeconomic influence like a trade dispute or a recession, that will overwhelm seasonal patterns.
After the May sell-off, investors are laser-focused on trade and clues on the Fed’s interest rate policy.
Whether investors go away for the Summer has a lot to do with 2 things: trade news and what the Fed does.
In the 4 years out of the last 50 that the S&P 500 dropped by more than 5% in May, it has dropped 2X that amount in June.
Investors are high alert for more of a pullback in here. That is not a bad thing because a lot of money is made very fast it that scenario.
Pay attention, it is your money, so your responsibility.
Have a terrific weekend