Why investors should ignore the old Wall Street adage ‘Sell in May’


The Charging Bull or Wall Street Bull is pictured in the Manhattan borough of New New York, January 16, 2019.

Carlo Allegri | Reuters

The “sell in May, and go away” strategy isn’t getting much love on Wall Street this year.

Market pros acknowledge that history clearly shows the market’s strongest six-month period is November to April, but they also say that’s not necessarily a factor that should shape investors’ plans in any year.

“Any investment strategy that you can summarize in a rhyme is probably a bad strategy,” said Jonathan Golub, chief U.S. equity strategist at Credit Suisse. Golub raised his S&P 500 target on Friday to 4,600 for year end from 4,300, based on strong earnings.

He said on average the market’s performance does follow the pattern of weakness between May and October, but it’s not a reason to get out of stocks.

“This would be perfectly reasonable if every single May looked the same as the May the year before,” Golub said. Just comparing this year to last year shows a huge contrast.

“Last May of last year the market was jumping off the bottom.” He said now the backdrop has totally changed, from a country and economy gripped by the pandemic last year, to a period in which a booming economy and earnings should drive further gains.

“Look at what we’re having this earnings season. U.S. companies are beating estimates by 22%. 22% is unheard of. The economic data is phenomenal,” said Golub.

The second quarter is expected to be even stronger, and those earnings reports will be released in July.

“I’m not selling in May, and I wouldn’t advise somebody else to,” said Golub. “I think the biggest mistake you can make in a market like this is to get too cute and get out too early. You’re better off trying to stay a little longer than get out to early.”

Market topping?

A tendency for a summer rally

Sam Stovall, chief investment strategist at CRFA also looked at the ‘”sell in May” phenomena, through the performance of the S&P Equal Weight 500. This index gives each stock equal weighting rather than the market cap weighting of the S&P 500 index.

Through April 30, the S&P Equal Weight 500 was up 16.2% for the year, its third strongest four-month start to any year since the index was created in 1990.

“Investors now ask if this benchmark of unweighted large-cap U.S. stocks has gone too far, too fast,” wrote Stovall in an note.

He said history shows that such early strength is typically followed by a period where the market digests the gains in May. The market can be volatile through September before an above average gain in the final three months of the year.

With all the focus on “sell in May and go away,” investors should know that the history of the adage might have more to do with going on vacation than bailing from the stock market.

“The phrase ‘Sell in May and go away’ originates from an English saying, ‘Sell in May and go away, and come on back on St. Leger’s Day,'” said Cornerstone Macro’s Worth.

St. Leger’s Day refers to the St. Leger’s Stakes, a thoroughbred horse race held in mid-September.

“It refers to the custom of leaving the city of London for the countryside to escape the hot summer months,” Worth said.

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