Questioning 'Sell in May and Go Away': Stock Market Defies Old Sayings

The well-known Wall Street saying 'sell in May and go away' suggests that investors should sell their stocks in May to avoid a seasonal decline in equity markets and not return until November. Yet, this year's analysis challenges the reliability of this adage, as more evidence points to a positive market performance during the May-October timeframe often considered lackluster.

Reassessing May-October Performance

Analysts have taken a deep dive into the performance records and have found that the long-standing belief in weak returns during the May to October period may not be as solid as once thought. LPL Financial's chief technical strategist, Adam Turnquist, has highlighted that average returns for the S&P 500 during this six-month stretch have in fact been positive since 1950, with notable increases in recent years. Specifically, over the last decade, the average return has accelerated to about 4.0%.

This information suggests that the practice of selling stocks in May would have actually precluded investors from benefiting from these gains, making it potentially an outdated strategy.

Month-Specific Insights

Backing up the findings, Fundstrat's Tom Lee pointed out that May has been 'a surprisingly good month' since 1985. Carson Group's strategist, Ryan Detrick, also noted consistent positive returns in the month of May, marking it as profitable in nine out of the past ten years with an average gain of 0.7%.

Furthermore, Detrick asserts that election years, such as 2024, tend to see a summertime boost in market returns leading up to an even bigger surge in November. Historically, during these election-period Mays, the stock market often realizes gains exceeding 2.3% a majority of the time.

The Broader Market Context

Adding to the relevance of this debate is the Federal Reserve's recent decision to maintain interest rates, with Chair Jerome Powell vocalizing a more cautious approach to control inflation. These monetary policy decisions are integral in shaping market sentiment and can influence investor behavior significantly.

While some investors, like Larry Summer, express caution about potential rate cuts amid current economic conditions, others remain bullish. They argue for the continuation of a strong market, buoyed by a robust U.S. economy and technological innovations in fields like artificial intelligence (AI).

In this dynamic climate, the once-firm belief in the May to October market slump is receiving a hard look, and the historic pattern is proving to be less predictable than the old adage would suggest.

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