Should You Sell in May and Go Away?

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Published by Debra TaylorCPA/PFS, CDFA, JD | May 23, 2016

One big question in the financial world right now is whether to “sell in May and go away,” and the answer depends on your interpretation of the current stock market signals. Historically, during the summer months of May through October, the market, as represented by the Standard & Poor’s 500 Index, posts negative returns about 33% of the time.  This results in what can easily be a confusing landscape during the best of times.  But with the current cross signals in the market, it only becomes more so.

On average, over the last 45 years, according to the WSJ Moneybeat, the summer market has returned 1%, and during summers when stocks rose the average return has been an increase of 5.6%. This sounds great so far, but during summers when stocks fell, the average return has been a drop of 8%. What can investors expect for the stock market this summer: a slightpositive return, a significant positive return, or a notable negative return?  The risk of “summertime blues” is then increased by the current uncertainty in the market.

In summary, just remember that the S&P 500 has gained an average of 1% in the past decade during May through October, and an average of 6.9% in the full calendar year. Historically, there were not big gains in the long run over the summer, but rather the returns were gained in the rest of the year.

Finally, the S&P is about to hit the one-year anniversary of the S&P’s latest record breaking finish, which according to MKM Partners Chief Market Technician Jonathan Krinsky, may not be a statistic to celebrate. Krinsky points out that there have only been two other instances (during the mid-1980s and the mid-1990s) where the Index went without a record breaking finish in a bull market, and it signified the emergence of a bear market.

In conclusion, Krinsky believes that with all the conflicting data, the best solution is neutrality until more data is revealed, and we at Taylor Financial Group agree. Currently, the biggest question facing investors is not if May itself bodes a decline in the market, but whether the crossed signals in the market represent a forthcoming bull or bear market.  We need to look towards the bigger picture, and vigilantly watch the conflicting stock signals until a better trend is established.

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