The tulips have bloomed and warmer temperatures are here, which means it\u2019s time for the \u201cSell in May and go away\u201d punditry to flood the financial news media. Don\u2019t buy into it.<\/p>\n
Many readers are likely familiar with the \u2018Sell in May\u2019 adage, which says that investors should ditch stocks at the end of April, wait on the sidelines until Halloween or some arbitrary date in the fall, and then reinvest in time for the Santa Claus late-year rally. But it\u2019s all just hocus-pocus, in my view.<\/p>\n
Data going back to 1925 shows that in the six months between May and the end of October, the S&P 500 has gone up in 69 out of 95 years \u2013 which means stocks went up 73% of the time. \u2018Sell in May\u2019 advocates still somehow manage to direct focus on the 27% of down years. The broader point is often missed: in the 73% of up years, the average annual return is +4.3%. If investors perpetually miss this upside (even if the upside is fairly modest), it can have major implications on long-term returns.<\/p>\n
It is probably worth adding that the \u2018Sell in May\u2019 strategy has not worked really at all in the last 10 years. The table below shows this clearly:<\/p>\n
Over the Last 10 Years, \u201cSell in May\u201d Has Basically Never Worked1<\/sup><\/strong><\/p>\n To be fair, \u2018Sell in May\u2019 in the context of 2021 makes for an interesting case. Stocks are at all-time highs, and many would say the market is looking frothy. I tend to agree that certain areas of the market are overvalued, which I think argues for an active, research-driven approach like we do here at Zacks Investment Management<\/em>. But what I don\u2019t agree with is the perception that a frothy market makes the case for market timing, especially amid economic expansion. This type of thinking is ripe for mistake-making, in my view.<\/p>\n Because at the end of the day, \u2018Sell in May and Go Away\u2019 is a market-timing strategy dressed up as a seasonal, statistics-driven investment approach. Most readers know how I feel about market timing, especially for investors with long-term goals of growth. As I write in my book, The Little Book of Stock Market Profits<\/em>, \u201cOver the years I have yet to find a successful investor who obtained his or her returns through market timing\u2026Active investment strategies can be developed that outperform the market over time \u2013 but engaging in behavior that borders on day-trading, because of what day is on the calendar, is ill-advised.\u201d The same applies today, in my view.<\/p>\n Bottom Line for Investors<\/strong><\/p>\n I have seen reputable pundits and even financial institutions still leaning into the \u2018Sell in May\u2019 adage and even noticed that the statistic has spilled over to Europe. One strategist noted that over the past 15 years, returns in Europe have been negative in June 80% of the time. Again, this is all hocus pocus and cherry-picking to me.2<\/sup><\/p>\n To be fair, I think we should expect some bumpiness in the months ahead, particularly with the market rallying so strongly over the past year and out-of-the-gates in Q1. Volatility, combined with adages like \u2018Sell in May,\u2019 often tempt investors to want to do something <\/em>in response. My advice: try to avoid such knee-jerk responses. If you are feeling any urge to adjust your asset allocation or to review your portfolio in response to volatility, please reach out to your Zacks representative first. That\u2019s why we\u2019re here.<\/p>\n As prudent, long-term investors, we should not try to time the market by season or any arbitrary date on the calendar. Stocks do not follow calendars, and neither should long-term equity investors.<\/p>\n","protected":false},"excerpt":{"rendered":" The tulips have bloomed and warmer temperatures are here, which means it\u2019s time for the \u201cSell in May and go […]<\/p>\n","protected":false},"author":3,"featured_media":7908,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-8082","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/8082","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/comments?post=8082"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/8082\/revisions"}],"predecessor-version":[{"id":8650,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/8082\/revisions\/8650"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media?parent=8082"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/categories?post=8082"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/tags?post=8082"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n\n
\n Year<\/strong><\/td>\n \u201cSell in May\u201d S&P 500 Return<\/strong><\/td>\n<\/tr>\n \n 2011<\/td>\n -8.1%<\/td>\n<\/tr>\n \n 2012<\/td>\n +1.0%<\/td>\n<\/tr>\n \n 2013<\/td>\n +10%<\/td>\n<\/tr>\n \n 2014<\/td>\n +7.1%<\/td>\n<\/tr>\n \n 2015<\/td>\n -0.3%<\/td>\n<\/tr>\n \n 2016<\/td>\n +2.9%<\/td>\n<\/tr>\n \n 2017<\/td>\n +8.0%<\/td>\n<\/tr>\n \n 2018<\/td>\n +2.4%<\/td>\n<\/tr>\n \n 2019<\/td>\n +3.1%<\/td>\n<\/tr>\n \n 2020<\/td>\n +12.3%<\/td>\n<\/tr>\n \n 2021<\/td>\n ?<\/td>\n<\/tr>\n \n Average<\/td>\n +3.8%<\/td>\n<\/tr>\n \n % Higher<\/td>\n 80%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n