How Accurate Is Sell In May And Go Away?

There’s an outdated inventory market adage that states that yearly one ought to “promote in Might and go away”, not reinvesting in equities till November. This saying is predicated on the widely held precept that shares rise extra within the 6-month interval from November to April than from Might to October. The truth that vital market declines have occurred in late summer season or early fall – just like the 1987 market crash – has helped to strengthen this perception.

Upon analyzing the precise information, over the past 50 plus years, shares do certainly carry out higher within the November-April semester than in Might-October. That is seen on the bar chart beneath, which demonstrates that within the final 52 years, the S&P 500 has averaged a 6.5% achieve throughout November-April versus solely a 1.6% achieve the remainder of the 12 months, a distinction of 4.9%. The NASDAQ
NDAQ
at 5.9% and the DJIA at 6.9% have even larger efficiency differentials.

This efficiency differential between the 2 time durations is exacerbated traditionally within the third 12 months of the US presidential cycle, about which we wrote earlier this 12 months. As proven beneath, in these years, the differentials are even larger with the S&P 500 having a 12.8% unfold, the DJIA having a 13.6% unfold, and the NASDAQ having a 14% unfold.

Trying extra granularly inside these durations, November tends to be the strongest month when all years are thought-about. When the main focus is simply on the third 12 months of the presidential cycle, January tends to be the strongest. Thus far in 2023, this has positively performed out with the NASDAQ rising a powerful 10% this January, the S&P 500 gaining over 6%, and the DJIA nearly 3%.

In the meantime, the weakest month general and for the third 12 months of the presidential cycle traditionally is September, with adverse returns throughout the board. Might and June are literally solidly optimistic each general and within the third 12 months. Once more, though returns are optimistic throughout this era, aside from the NASDAQ, they’re extraordinarily muted.

S&P 500 Every Third 12 months of Presidency since 1970

Digging deeper into the presidential cycle, the Might-October interval has underperformed the November-April interval in 11 of 13 situations or 84% of the time. Apparently, S&P 500 has began the Might-October interval above its 200-DMA in each occasion.

This wonderful truth speaks to the power of the primary half of the third 12 months of the presidential cycle, which is by far the perfect six-month interval of the entire presidential cycle. The truth is, for the S&P 500, it’s the solely historic 6-month interval of the four-year cycle with double-digit returns, as proven within the desk beneath.

At this level in 2023 traders appear to have captured most of that achieve, as evidenced by the NASDAQ rising over 17%, and the S&P 500 rising 8%. Given the sturdy positive factors we now have seen 12 months so far, it might be believable for the inventory market to consolidate a few of its positive factors over the summer season months.

Now think about the Might-Oct interval and in third 12 months of presidencies by sector information. Surprisingly, the expansion oriented Expertise sector and the opposite-style defensive Utility sector are the 2 finest performing areas traditionally. Conversely, the weakest areas have been Shopper Cyclical, Vitality, and Financials.

In conclusion, the “promote in Might and go away” perception is rooted in historic information. As well as, the differential between the November-April interval and the Might-October interval is much more pronounced within the third 12 months of the presidential cycle, through which we presently stay. Thus far, 2023 has performed out consistent with previous patterns. Given the magnitude of the positive factors and regular seasonality, we’d count on a interval of digestion in the course of the summer season months. Nonetheless, we’re optimistic in regards to the inventory market’s alternatives because the Fed slows its tightening cycle and US employment stays sturdy.

Kenley Scott, Director, International Sector Strategist at William O’Neil + Firm, an affiliate of O’Neil International Advisors, made vital contributions to the information compilation, evaluation, and writing for this text.