Since 1990, the S&P 500 has gained an average of around 2 percent from May through October. That compares with the index's average gain of approximately 7 percent from November through April.
So should advisors tell their clients to sell in May and go away, or not?
Well, maybe sell a little, says Jeffrey Hirsch, editor-in-chief of the Stock Trader’s Almanac, which tracks such seasonal trends.
“You should definitely consider selling some things, taking some profits, tightening up some stops. But don't go away,” Hirsch told InvestmentNews.
“We're already seeing some weakness in the market, so it's probably a good time to at least limit new buying and protect some gains so far,” he added.
While summer has typically not been the best season for stocks, with the Almanac listing the so-called “summer rally” as the worst of the four seasons, the market still goes up – something that market timers need to keep in mind if they plan to trade around calendar patterns.
In the last 60 years, winter rallies averaged a 12.9 percent gain measured from the low in November or December to the first-quarter closing high. Spring rallies came in at 11.8 percent, followed by fall with 11.1 percent, according to the Almanac. The average summer rally was last and least at 9.4 percent, but that’s still not that bad.
For those interested in market-timing other Wall Street maxims or historical streaks heading into the summer season, the Dow has been up 23 of the last 38 years on the day after Memorial Day. Memorial Day, which is often considered to be the unofficial kick off to summer, falls on Monday, May 27, this year. According to the Stock Trader’s Almanac, the Dow has been down 16 of the last 28 years during entire week of Memorial Day, for what it's worth.
Aside from the obvious risks associated with market-timing, the other reason advisors might not want to sell this May and go away is that election years tend to be bullish. According to Hirsch, they're even more bullish when a sitting president is running for reelection, as is the case this year with President Biden.
“The S&P is up 12.8 percent on average during years when the sitting president is running for reelection, versus an open field, when there's nobody in office running, which is a negative 1.5 percent for the S&P,” Hirsch said.
He attributes that outperformance to “limited uncertainty” when there's the potential that the incumbent will be returned to the Oval Office, as market participants are familiar with their economic and civic policies.
Regardless of which party is victorious, the Almanac says the last seven months of an election year have seen S&P post gains 16 out of 18 times since 1950. For the record, one of those losses was in 2000, when the election’s outcome was delayed for 36 days. So there's that, too.
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