The traditional Wall Street adage “sell in May and go away” may not hold water this year, as analysts debunk the myth with strong evidence of positive stock market performance during the historically weak May-October period.
What Happened: The six-month period from May to October is often considered the worst for stock market performance. However, LPL Financial‘s chief technical strategist Adam Turnquist pointed out that the average returns for the S&P 500 during this period have been positive since 1950, reported Business Insider on Monday.
Turnquist’s data shows an average return of +1.7% for the past 10 years, which jumps to +4.0% for the last decade. This suggests that selling stocks in May based on historical trends might not be the best strategy.
“Unless investors can seek superior returns in other asset classes, being out of the equity market may not have been the best strategy, with stocks still delivering positive six-month returns, on average, over all the May-October periods studied,” Turnquist said in a recent note.
Tom Lee of Fundstrat also ran the calculations and discovered that since 1985, “May has been a surprisingly good month.”
Market strategist Ryan Detrick of Carson Group also noted the positive returns during this period, particularly in May, which has seen positive stock market returns in nine of the past ten years, with an average gain of 0.7%.
In conclusion, Detrick discovered that in years where there is a presidential election, such as 2024, the stock market typically experiences a summer rally prior to the November surge. The period from May to October typically sees gains of 2.3% and higher 78% of the time.
Why It Matters: The potential irrelevance of the “Sell in May and go away” adage comes in the wake of recent statements by the Federal Reserve which has decided to keep interest rates steady, emphasizing the need to allow more time for restrictive monetary policies to bring inflation towards the Fed's 2% goal. This decision has had a significant impact on market dynamics.
"The inflation data received so far this year have been higher than expected," Federal Reserve Chair Jerome Powell said today, adding that it is likely that gaining greater confidence in disinflation will take longer than previously thought.
This stance has been questioned by investors like Larry Summer, who have warned against potential rate cuts in the current economic climate.
These developments follow earlier predictions of a “classic 10% correction” in the S&P 500 index by Wall Street veteran investor Ed Yardeni, who noted that “rising yields are starting to weigh on the stock market.”
Despite these concerns, other experts have remained confident in the continuation of the bull market, citing a robust U.S. economy and the potential of artificial intelligence (AI) as key drivers.
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