Markman Capital Insight

Should You Sell in May, Then Go Away?

We've talked about whether it actually makes sense to dump stocks based on an axiomatic Wall Street rhyme — "sell in May and go away" — and determined that the idea actually has some merit . While stocks don't necessarily go down much from May to October, they also don't go up much. It's kind of a long dead zone on the calendar.

Yet there are certain stretches of this traditionally weak period that are more negative than others. Analysts at Bespoke Investment Group note that, based on the historical pattern of the equity market over the last 10 years, it doesn't get much more weak than the upcoming period.

As shown in the Bespoke table below, the S&P 500's median return in the two-week window from today's close through the May 23 close has been a decline of 1.5%, with positive returns just four out of 10 times.

Despite the weak overall returns, though, it's well worth noting that over the last three years this period has been positive. Last year, not only was the S&P 500 up, but eight out of 10 sectors also managed gains, according to the Bespoke data.

The only sector that has seen positive returns on a median basis is consumer staples; however, with a median return of just 0.2%, the gains have been minimal.

It has already been a tough year for financials, but based on the seasonal patterns the prospects aren't looking much brighter, the Bespoke analysts observe. Over the last year, the sector has seen a median decline of 2.9%, with gains just three times. That being said, the three years of gains have been the last three, so maybe the tide is turning, the analysts noted. Outside of consumer staples, no sector has seen gains even half of the time.

Over the years, we have looked at a lot of this kind of data together, so you know my usual caveat: History is not destiny. But it still pays to be aware of market participants' tendencies.

The past three years, when the market has fared well in the coming two weeks, stocks were already faring well. This time, the broad market is just barely hanging onto gains for the year, and the tone has been mostly one of apathy. Bulls have a lot going for them at this time, but the calendar isn't one of them.

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