Quick Take: The "Sell in May and Go Away" adage suggests investors sell equities in spring to avoid historically weaker summer returns. However, historical S&P 500 market data cited in this article shows the index averaged a ~4% gain between May and October over the periods examined, suggesting that staying invested can be more beneficial than attempting to time seasonal market movements.
The Origin of the "Sell in May" Market Adage
Every year, analysts tell us to “Sell in May, and go Away.”
The adage is based on what the Stock Trader’s Almanac calls the “best six months of the year.”
“Historical data reveals that the top performing 6-month rolling period, on average, has been November through April. Hence, the saying investors should sell in May and go away — and come back in November,” says Fidenlity.com. “History shows this trading theory has flaws. More often than not, stocks tend to record gains throughout the year, on average. Thus, selling in May generally doesn't make a lot of sense.”
As many of us have learned, that’s not such a good idea. In fact, over the last few years, markets have actually pushed higher from May on.
What Historical S&P 500 Returns Reveal About Summer Trading
“According to Dow Jones Market Data, the S&P 500 is up 4% on average during May through October over both the past five and 10-year periods. That compares to a 6% increase for the blue-chip index in November through April during the past five years and 5.5% average gain during the last 10 years,” according to Barron’s.
So, if you’re thinking about selling this May, don’t. Sit tight and invest as you normally would.
Key Risks of Exiting the Market During the Summer Months
Rather than attempting to time seasonal pullbacks, investors can explore long-term value opportunities through Behind the Markets as part of a broader investment strategy focused on long-term portfolio growth.
Investors holding dividend-paying equities through summer months also explore covered-call income strategies through Portfolio Payouts, while considering the additional risks involved.
Frequently Asked Questions About the "Sell in May" Strategy
Q1: Where does the saying "Sell in May and Go Away" originate?
A: The adage originates from an old English tradition ("Sell in May and go away, and come back on St. Leger's Day"), referencing aristocrats leaving London during summer. In modern markets, it refers to the Stock Trader's Almanac finding that November through April historically outperforms May through October.
Q2: Does "Sell in May" actually work for long-term stock investors?
A: Not necessarily. While November through April has historically delivered stronger average returns, the S&P 500 has also recorded positive average gains during May through October. Selling during the summer can create potential tax liabilities, trading costs, and the risk of missing market rallies, depending on an investor's circumstances.
Q3: What should investors do instead of selling in May?
A: Instead of selling solely based on seasonal market trends, investors can consider staying invested according to their financial goals, rebalancing portfolio allocations as needed, and focusing on quality defensive companies or dividend-paying equities that align with their investment strategies.
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Written by Ian Cooper