Markman Capital Insight

Sell in May and go away?

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Need to Know Now

Investors are in a gloomy mood today.  Blame the calendar.

The two-month stretch of March and April have historically been one of the best in the calendar year for investors, and it certainly worked out this time, with a 6.9% gain in the S&P 500 and a 7.6% gain in the Dow in 2016.

But what about May?  Returns this month have been  weak historically, and -- true to form -- are down 1% this year.

Bespoke Investment Group analysts ran the numbers : Over the last 100 years, the Dow has averaged a gain of just 0.1% in May, with positive returns 54% of the time. Over the last 50 years, it has actually averaged a decline in May, with positive returns 48% of the time. Over the last 20 years, May has seen the Dow average a minimal gain of 0.05%, with gains exactly half the time. So, yeah, it gets worse.

Does that mean you should adopt a portfolio strategy based on a rhyme, "Sell in May and go away"? Much as I would like to say that's a stupid idea, it's actually not that dumb. Since 1929, the index has averaged a gain of 5% from November through April, while it has averaged a gain of just 1.9% from May through October, according to Bespoke data. Over the last 50 years, the November to April period has seen an average gain of 6.6% versus 0.8% from May through October. Finally, over the last 20 years, November through April has averaged a 6.3% gain, while May to October has averaged a 0.8% gain, the data shows.

Above is a Bespoke chart showing the S&P 500's change by year during these two periods over the last 20 years. Only three of the last 20 years have seen declines from November to April, while eight of 20 years have seen declines from May to October. Clearly, the November to April period has historically been much, much stronger than the May to October period, the data shows.

While May to October has averaged minimal gains, Bespoke argues, they're still gains — so its analysts suggest that the couplet should actually be, "Hold in May and go away." That doesn't rhyme, but it's certainly more accurate.

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