Sell In May and Go Away?

The onset of summer conjures images of sunshine, beaches, and vacations. For traders and market historians, it also evokes an oft-repeated adage that investors should “sell in May and go away.” This phrase is based on historical trends showing that the period from May to October is typically the weakest stretch of the year for market returns. As with most trends, this quippy saying oversimplifies the phenomenon. 

The phrase “sell in May and go away” doesn’t come from Wall Street; rather, it originated in London’s financial district. The original phrase was “Sell in May and go away, come back on St. Leger’s Day.”  Established in 1776, the St. Leger Stakes is one of the most well-known horse races in England and is run annually in September. In its original context, the adage recommended that British investors, aristocrats, and bankers should sell their shares in May, relax and enjoy the summer months while escaping the London heat, and return to the stock market in the autumn after the St. Leger Stakes. The phrase was further popularized when it was included in the Stock Trader’s Almanac, originally published in 1968, alongside other calendar-based trading strategies. 

For the modern investor, these simple timing-based strategies sound catchy and quaint, but they don’t always offer a reliable way to participate in market appreciation. Current economies are increasingly complex and interconnected, and the number of investors has been democratized far beyond a small handful of London traders who were able to step away for the summer months. 

Taking an historical perspective, from 1928-2023, the S&P 500 averaged a decline of -0.1% during the month of May.[1] This starts to give credence to the saying, but when we expand our lens to the full range of summer months, the picture looks a little different.   

While data shows that the May-October period has been the weakest six-month cycle for the S&P 500, returns have nonetheless been positive on average, returning +1.7% for investors. When you look at the past 10 years, that number jumps to +4.0% during the summer months, though it has still consistently trailed the November-April stretch.[2]

Why do stocks tend to perform better during the November to April time period? The reality is that there is a lot of money moving throughout the economy during these months. Consumer spending on Thanksgiving, Christmas shopping, New Year’s travel, the Super Bowl, and Valentine’s Day all come during these months. Additionally, new money tends to be invested as households receive year-end bonuses and tax refunds. Even though stocks haven’t traditionally done as well from May through October, they still tend to go up, suggesting that staying fully invested has been more reliable than attempting to time the market.

When looking at historical data, patterns often emerge. They are not, however, predictive of what will happen in any particular instance in the future. If enough investors behaved as if the “sell in May and go away” summer slowdown will occur, the pattern would gradually disappear. Early-bird sellers would all try to sell in April and then bid against each other to buy the stocks ahead of the pack in October. If the pattern were predictive, it would lead to its own undoing. 

There are plenty of instances in which the pattern didn’t play out. In any given year, the influence of seasonality is swamped by a variety of other, often more pressing considerations. 2024 provided a prime example: The S&P 500 rose +4.8% this May, which marks its strongest performance for the month since a +5.3% rise in May 2009 as stocks were rallying off the financial crisis low set in March of that year.  

To highlight another example, selling in May would have been devastating for investors in 2020 as the S&P 500 slumped -34% over five weeks in February and March as the COVID-19 pandemic struck, only to rebound and return +12.4% from May to October. Investors who “sold in May” would have missed out on those gains.

At North Berkeley, we prefer to rely on economic analysis and current market conditions rather than on historical phrases that link market performance to an annual horse race. Our clients benefit from staying invested in broadly diversified portfolios through full market cycles – and through the summer.

Trying to time the market, whether it’s based on a saying or even solid data, is incredibly difficult and often counterproductive. Instead of “selling in May…”, investors can add far more value to their portfolios by adhering to a different phrase: “It’s not about timing the market, but about time in the market.”

Resources

[1] Dow Jones Market Data 

[2] Data compiled by Adam Turnquist, chief technical strategist at LPL Financial.