"Sell in May and go away" is a long-standing stock proverb in Western financial markets, which is widely believed by many Wall Street professionals. It emphasizes the fact that historically, the worst six months for the US stock market have been between May and October.
Nowadays, although the overall attitude of the Federal Reserve and Chairman Powell leans towards the dovish side, the US stock market still performed "neither salty nor dull" on the first trading day of May. So, is it time for the US stock market to sell again now?
From a long-term historical perspective, the investment rule of "selling in May" is clearly not entirely unfounded. There is a data harness, and the six months from May to October were indeed the worst performing months in the US stock market over the past 70 years.
But some strategists point out that when you carefully observe these data, they are not so bad, obviously not to the point of selling stocks just because the calendar flipped from April to May.
Exiting the stock market is not the best strategy
LPL Financial Chief Technology Strategist Adam Turnquist emphasized that since 1950, the average return rate of the S&P 500 index over these six months has actually been positive, not negative, at+1.7%. Moreover, if we look back at the past 10 years, this number will jump to+4.0%.
"Unless investors can seek higher returns in other asset classes, exiting the stock market may not be the best strategy, as the average six-month return on the stock market remained positive from May to October in the years studied," he wrote in his latest report.
Carson Group market strategist Ryan Detrick also pointed out that during the worst six months of the year in the stock market, returns were positive. He further added that May itself was a relatively stable month for the stock market, with 9 out of 10 years achieving positive returns and an average increase of 0.7%.
Tom Lee, co-founder and research director of Fundstrat Global Advisors, a US investment firm, also analyzed the data and found that "May's performance has been surprisingly good since 1985."
Lee was one of the few bulls on Wall Street last year, predicting that the S&P 500 index would soar by over 20% to 4750 points by the end of 2022. As expected, the unexpected surge in the S&P 500 index last year resulted in a price difference of only over 30 points from its set target level. According to reports, among the strategists tracked by Bloomberg, his prediction is the closest.
He emphasized that in the past 40 years, 77% of the time in May achieved positive returns, and in the case of achieving positive returns in the first quarter and negative returns in April, the return rate was even higher, reaching 83%. Isn't this situation like this year?
In April of this year, the US stock market ended in a tragic end, with the Dow Jones Industrial Average falling a total of 1991.45 points, a decrease of 5.00%; The Nasdaq has fallen 4.41%, while the S&P 500 index has fallen 4.16%. Previously, all three major stock indices recorded five consecutive months of gains.
Is there an exception to the presidential year?
Finally, Detrick also found that in presidential election years like 2024, the stock market often experiences a summer rebound before the usual November rebound. In previous presidential years, the average increase between May and October was 2.3%, with 78% of the time experiencing an increase.