Why ‘sell in May and go away’ could be a bit premature for stocks, according to one chart (2024)

FAQs

Why Sell in May and go away could be premature? ›

KEY TAKEAWAYS. "Sell in May and go away" is a popular adage that suggests investors get out of stock holdings in the summer months and invest again around Halloween. While historical stock performance shows evidence of lower returns during summer months, advisors don't recommend investors pull out of the markets.

"Sell in May and go away" is an old market adage, popularized by the Stock Trader's Almanac, revealing the best six months of the year for stocks (they used the Dow Index) occurred from November through April. It suggested investors should sell in May and wait until November to buy back into the markets.

The old saying, "Sell in May and go away" is not just folklore — stock market history supports it. History shows stock market performance tends to sag from May to October compared with the November-April period. Still, investors can expect low single-digit gains over the next six months.

There is a popular Wall Street maxim: “Sell in May and go away.” This suggests investors should sell their equity holdings this month and then reenter the equity market in November, based on the historical tendency of stocks to underperform between May and October (compared to November through April).

Sell in May and Go Away Meaning

The historical trend of selling stocks in May is thought to have originated from English high society during the 18th century. Market activity slowed when bankers and traders left London on their summer holidays.

After all, the adage “Sell in May and Go Away” says investors should sell their stocks in May and re-enter the market in November to capitalize on the historically strong performance of equities between November and April. It denotes traditional market underperformance during the summer months (May to October).

One saying, “sell in May and go away,” is a concept that has caught the attention of investors for decades. The phrase suggests a seasonal pattern in the stock market, where historically, stocks perform better during the colder months (November to April) compared to the warmer months (May to October).

"Sell in May and go away" is an adage referring to the historically weaker performance of stocks from May to October compared with the other half of the year. Since 1990, the S&P 500 has averaged a return of about 2% annually from May to October, versus about 7% from November to April.

The full version of the phrase is 'sell in May and go away, come back on St. Leger's Day'. This is a reference to the St. Leger Stakes horse race – the last leg of the British Triple Crown, which is held every year in the middle of September.

Historically, the six-month period between November and April is the strongest time of year for smaller-cap stocks. This historical precedence held true in the most recent six-month period, with the Russell 2000 rising 18.7% from the beginning of November 2023 through the end of April 2024.

How is the month of May for stocks? ›

The S&P 500 averages a decline of 0.1% usually in May, according to Dow Jones Market Data, which noted that May is typically the second worst-performing month of the year (see chart below). That historical performance helps explain the oft-cited seasonal saying.

The Best Month to Buy Stocks

When thinking about the best months to buy stocks, examining historic performance can be helpful. Data showing average monthly returns for the S&P 500 between 1950 and 2023 shows that broadly, November, July, April, and October tend to be the best months to buy.

According to Reuters, since 1945, April and December are tied as the best-performing months of the year for stocks, with an average return of 1.6%. (September is notoriously the worst, with an average loss of -0.6%.) During recessions, April's positive performances can be even more pronounced.

Analysts project 11.5% earnings growth and 5.5% revenue growth for S&P 500 companies in 2024. Fortunately, analysts see positive earnings and revenue growth for all eleven market sectors this year.

With all these factors taken into consideration, the best time of day to trade is 9:30 to 10:30 am. The stock market opens for trading at 9:15 AM and in the first 15 minutes, the market is still responding to the previous day's news with experienced traders waiting to make their move.

Dow Jones Market Data shows that the S&P 500 has gone up 4.2% on average during May through October of presidential election years going back to 1928. That compares to a 2.1% average gain for all May-October periods during the same time frame. It makes sense.

Open interest is the number of contract outstanding. Many traders close out their positions just before the delivery month is reached. This is why the open interest declines during the month preceding the delivery month.

When a large number of institutions do VWAP selling during the last half hour of expiry day, it puts tremendous pressure on the markets, normally leading to a sharp correction in the markets. When large institutions plan to sell out on cash positions on expiry day, they tend to play the market via equity and futures.

The two most common reasons an investor might want to short-sell a security are: To hedge another investment. To profit from a predicted price decline.