Should We Sell in May, and Go Away? 

05.16.2024 The adage “sell in May and go away” has been kicking around Wall Street for decades, leveraging the fact that, historically, most of the market’s return has occurred between November and April.  As we enter May 2024 with a nearly 10 per cent gain in the S&P 500 year to date, and a nearly 21 per cent advance between last November and the end of April, does it make sense to heed this adage and sell? Not really, and especially not this year.

Analyzing the Dow back to 1900, the November-April portfolio ran circles around the May-October mix. One thousand dollars invested in 1900 in the May-October portfolio grew to $3,173, as of October 2023, for an annualized return of 1.9 per cent in terms of price only. Meanwhile, $1,000 invested in the November-April portfolio expanded to $188,160, for an 8.7 per cent annualized price-only return. 

Sell the Dow Jones Industrial Average in May and Go Away

Historical data shows that while the May-October period has been the weakest six-month cycle for the S&P 500 since 1950, returns have nonetheless been positive on average. More recently, over the last 10 years, May-October returns have been positive, although they consistently trailed the November-April stretch. 

Dow Jones Industrial Average: Annualized Price Return by Decade

From a monthly perspective going back to 1990:

  • Most of the market’s biggest drawdowns took place in August and October.
  • September’s largest pullback, 14.2 per cent, occurred in 1998.
  • The 2008 financial crisis saw a 16.8 per cent decline during October.

Moreover, the average returns for August and September are negative, while the average return for each of the November-April months is positive.

Sell in May and Go Away: Monthly Returns 1990-Today

Volatility, a measure of market risk, on average is higher for the November-April period, although September and October had the highest monthly average volatility – think Black Monday (October) and the Lehman Brothers collapse (September).

Average Monthly Stock Volatility (VIX) 1990-Today

Bottom Line: We believe investors should continue to hold equities through the May-October months – particularly those investors who are subject to capital gains taxes. It should also be noted that presidential election years tend to see better stock performance in the May-October period compared to mid-term and non-election years. Moreover, the current pause in interest rate hikes by the Federal Reserve is one of the longest in modern history, and long pauses historically have presented a favorable backdrop for equity investing.

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