5 Things To Ponder: Sell In May & Go Away

Tyler Durden's picture


Submitted by Lance Roberts of STA Wealth Management,

There is an old Wall Street axiom that goes "Sell in May and go away, come again after St. Leger's day."  Of course, as with all Wall Street axioms, they are viewed by the media to be "valid" only if they work every single year. The reality is that no axiom, investment discipline or strategy works all the time. It is the cumulative effect over long periods of time which defines success or failure.

 In order to provide some context to today's selected readings, both for and against this particular "Wall Street wisdom," I am providing some statistical analysis.  The table below, which uses Dr. Robert Shiller's data, shows the monthly statistical data of returns which I will use for the remainder of this missive.


Historically, May is the 3rd worst performing month for stocks on yielding an average return of 0.27% and a median return of 0.49%.  The chart below graphically depicts the disparity of monthly average and median returns.


May, as shown in the above, also represents the beginning of the "seasonally weak" period for stocks.  As the markets roll into the early summer months, May and June tend to be some of weakest months of the year along with September.  This is where the old adage of "Sell In May" is derived from.  Of course, while not every summer period has been a dud, history does show that being invested during summer months is a "hit or miss" bet at best as shown in the next chart of historical returns for May back to 1900.   While May's monthly average is skewed by sharp deviations in returns during the "Great Depression," more recent years have been primarily contained, with only a couple of exceptions, within a +/- 5% return band as shown below.


One last point, as I discussed in "Sell In May Particularly During Mid-Term Election Years:"

While there are some years that have posted sizable gains during the summer months, such years do not invalidate the long term statistical probabilities. As the table shows above, the average annual return from the summer months is significantly poorer than the fall and winter. To show the impact of that performance differential, I constructed the following chart which shows the growth of $10,000 invested in each of the seasonal periods.


So, with this context in place let us ponder some different views about whether you should "Sell In May," or not.

1) Dow Closed At A 52-Week High On Last Day Of Aprilby Jason Goepfert via Sentimentrader

"The Dow has closed at a 52-week high on the last day of April seven other times in its history. The next three months showed positive returns two times, negative returns five times, with an overall average return of -1.6%. At its best point during the next three months, it gained a median +1.9%, while at its worst point, it lost a median -3.3%. The years were 1945, 1951, 1954, 1965, 1983, 1995 and 2011."

2) Dow At A Record: Time To Sell In May?by Adam Shell via USA Today


3) Why Investors Expect To "Sell In May" by Trang Ho via Investor's Business Daily

"But more important at this point is capital preservation and eventually re-establishing some exposure for the year-end rally, which may turn out to be the last leg of this bull market," Maierhofer said in an email. "There are some bearish divergences indicative of a slowing trend but not the kind of divergences usually seen right before major market tops."

4) 17 Reasons Not To "Sell In May"by Mark Hulbert via WSJ MarketWatch

"However, and some sectors historically have not adhered to the same seasonal pattern. That’s according to an academic study titled 'The Halloween Effect in U.S. Sectors,' written by Ben Jacobsen, a finance professor at Massey University in New Zealand, and Nuttawat Visaltanachoti, a senior lecturer in finance at that institution.


The industry groupings that stood out the most in their study were food and agriculture, leisure, multimedia, retailing and utilities.


One option would be to invest in ETFs benchmarked to those five. But another would be to focus on stocks within the sectors that are particularly compelling."

5)  Sell In May? Via ZeroHedge

As FBN's JC O'Hara explains, the “Sell in May” slogan heard around Wall Street has some truth behind it. The gist of the saying suggests it’s better to be out of the market come May and re-enter during the fall months.

"We ran the numbers over the last 20 years and found validity to the statement. We created a model that went long the market Jan, Feb, March, April, Oct, Nov & Dec. as well as a second model that went long the market May through Sept 30. We concluded that the May – Sept time period model, on average over the past 20 years, would have lost you money.


The majority of the time the market was unimpressive over those summer months. The majority of the markets returns were housed in the first model that was long the months into May and the months after Sept. While there were instances where May – Sept was negative, the risk adjusted returns suggests investors do not necessarily need to exit the market but should expect flat markets with little if any of the yearly gains coming during this time period. The real money was made during other 7 months of the year. As we approach May we are not in the SELL camp yet, but rather acknowledge the fact that a volatile, stagnant, sideways moving market is what history implies. Over the next few pages of this report we examine the past 20 years and highlight where the majority of returns are found."

The key chart in this analysis was the following which shows the seasonal tendency of market returns during "mid-term election years."


As always have a great weekend.

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Fri, 05/02/2014 - 16:53 | 4721794 TeamDepends
TeamDepends's picture

Sell in May and pray, pray, pray.

Fri, 05/02/2014 - 17:21 | 4721900 john39
john39's picture

scores dead in Ukraine.  well done nuland you evil bitch:


Fri, 05/02/2014 - 17:35 | 4721954 Jam Akin
Jam Akin's picture

With all the manipulation it is not price discovery, rather price covery.

Fri, 05/02/2014 - 17:53 | 4722023 Slave
Slave's picture

sell in May..............exept on Tuesdays...

Fri, 05/02/2014 - 21:33 | 4722651 A Nanny Moose
A Nanny Moose's picture

Market? What Market? Leck......big leck

Fri, 05/02/2014 - 23:48 | 4722957 TheRedScourge
TheRedScourge's picture

I heard that if you factor in dividends, this strategy does not work.

Fri, 05/02/2014 - 17:36 | 4721959 NotApplicable
NotApplicable's picture

May? What about on Tuesdays?

Fri, 05/02/2014 - 17:29 | 4721933 Pairadimes
Pairadimes's picture

This year, the old adage may have to be 'sell in May and stand the fuck back.'

Fri, 05/02/2014 - 16:55 | 4721800 imbtween
imbtween's picture

There is, in fact, one Wall St axiom that is always true:

Markets take the stairs up and the elevator down.

Fri, 05/02/2014 - 16:58 | 4721813 Soul Glow
Soul Glow's picture

Sell in May and buy silver.

Fri, 05/02/2014 - 17:11 | 4721859 ronron
ronron's picture

sell in May and move to iceland may work better for you.

Fri, 05/02/2014 - 17:15 | 4721874 Fuh Querada
Fuh Querada's picture

If it's true then everyone should be stinking rich.

Sat, 05/03/2014 - 08:47 | 4723338 U4 eee aaa
U4 eee aaa's picture

We got the stinking part right

Fri, 05/02/2014 - 17:23 | 4721907 Let them eat iPads
Let them eat iPads's picture

All axioms are null and void in a Fed rigged market.

Fri, 05/02/2014 - 17:31 | 4721911 Squid Viscous
Squid Viscous's picture

Sell in May is pre QE, now St. Legers day is 3-4 days a week, was he a big fan of usury and "money" printing? 

Fri, 05/02/2014 - 17:34 | 4721950 Spastica Rex
Spastica Rex's picture

Never sell or else you're gay.

Fri, 05/02/2014 - 17:37 | 4721964 ronron
ronron's picture

ha. funny shit. i had to unjunk you.

Fri, 05/02/2014 - 17:38 | 4721965 Jam Akin
Jam Akin's picture

Not that there's anything wrong with that...

Fri, 05/02/2014 - 17:44 | 4721988 Luckhasit
Luckhasit's picture

Of course not.  

Fri, 05/02/2014 - 17:38 | 4721968 Bloody Muppet
Bloody Muppet's picture

Sell in May and Yellin may laugh at your lack of faith.

Fri, 05/02/2014 - 17:57 | 4722032 besnook
besnook's picture

i have an inkling there is a stronger cause and effect relationship with the school year. vacations are taken in the summer because the kids are out of school so there are fewer people in the trading room( i don't know if this is borne out by trading volume). year round school would level the difference between the seasonal curves.

Fri, 05/02/2014 - 19:12 | 4722072 Yen Cross
Yen Cross's picture

   Does anyone remember this South Park clip?

  South Park : Mickey Mouse beats up the Jonas brothers - YouTube


 I must have upset the CEO of Disney? 

   Paging Jeff Immelt, CEO "We make Things better"> would you please report to the [Jeffrey Katzenburg] tent.

Fri, 05/02/2014 - 18:52 | 4722207 TheRideNeverEnds
TheRideNeverEnds's picture

Buy in October and hope the market doesn't roll over.


Am I doing it right? 

Sat, 05/03/2014 - 05:57 | 4723221 Jack4952
Jack4952's picture

It is a fact that historically MOST of the gains in stocks occur during a very few days during any year.

The problem with selling stocks in a falling market is that one can NEVER KNOW those few days when stocks actually increase in value. That is why "market timing" is foolish over the long-term.

Historically, the best strategy (smallest risk with maxum resturns) is to invest in an INDEX fund (e.g., S&P500) and hold it long-term. A very few investors may beat your returns, but you will most certainly beat the vast majority of people who frequently buy and sell stocks (or non-index funds).

I learned this in my late 20's - which is why I was able to retire in my mid-50's.



Sat, 05/03/2014 - 11:42 | 4723607 GFORCE
GFORCE's picture

This analysis is a bit self-indulgent. The simple fact is that 7 of the last 8 years have seen a dow decline of 1000-2000 Points on average. The only year prices held up was 2007 but the price fell in July. As always its about timing the trade. Late April or early May was the usual start of the decline. Price action is pushing into the highs and may retest 1900 on the S&P but meeting sellers there could see an unwind into June/July. Posssibly as low as 1700. New highs will follow that.

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