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Sell in May or Stay Invested?

May 10, 2024

As May rolls around, so does the age-old adage to “Sell in May and Go Away.”  This adage suggests selling stocks or equity holdings in May and staying out of the market until around October, reflecting a seasonal strategy often discussed in financial circles at the end of April.  This year, the adage has garnered increased attention, particularly after April’s challenging performance, marked by a 4.16% decline in the S&P 500 and the end of a 5-month winning streak for the market.  In this blog we will look at historical trends and market fundamentals to determine if staying invested might be a wiser choice, even amidst potential market volatility and challenging investment conditions.


Historical Trends:

Historical data highlights that the May-October period has typically exhibited weaker market performance compared to other 6-month periods.  Since 1950, this timeframe has seen an average return of 1.7%, with a win rate of 64.9% in the S&P 500.  In contrast, the November-April period tends to shine, boasting an average of 6.9% and positive returns 76.7% of the time.  However, in election years, this typically weaker period tends to show relative resilience, with average returns of 2.3% and positive returns 77.8% of the time[1].


Momentum and Corrections:

Market momentum is another crucial factor to consider.  Recently, we witnessed a five-month streak of positive returns from November through March, followed by a negative return in April.  Some might interpret this as a shift in momentum and the beginning of a correction.  However, historical data suggests otherwise.  In the instances where a five-month streak ended, rolling one-year returns remained positive, with an average annual return of 13.3%.[2]


Occurrence

Monthly Return

S&P 500 Return Forward One Year

Jun-1950

-5.8%

18.5%

Feb-1999

-3.2%

10.3%

Mar-2004

-1.6%

4.8%

Jan-2005

-2.5%

8.4%

Jul-2014

-1.5%

9.0%

Aug-2016

-0.1%

13.9%

Sep-2020

-3.9%

28.1%

Aug-2023

-1.8%

13.5%

Apr-2024

-2.6%

?

Positively Monthly Run Ends at Five Months

Average Return

13.3%

Median Return

11.9%

% Positive

100.0%

All Years

Average Return

9.0%

% Positive

73.8%

Source: LPL Financial Research



Fundamentals Matter:

When predicting market direction, fundamentals play a significant role.  Key indicators such as corporate earnings and valuations paint a picture of the business environments health.  Despite potential short-term fluctuations, corporations continue to show resilience.  First-quarter corporate earnings for 2024 have been strong, with approximately 77% of companies reporting positive earnings surprises with 5.0% earnings growth, the highest quarterly earnings growth since the second quarter of 2022[3]

Analysts outlook for future earnings is also positive, with estimates for 2025 seeing upward revisions.  This indicates optimism about the business environment in the coming years.  

Furthermore, the forward P/E ratio for the S&P 500 stands at 19.9, slightly higher than the 5-year average of 19.1 and 10-year average of 17.8.  However, it’s worth noting that this ratio is lower that the forward P/E of 21 recorded at the end of the first quarter in March[4].  While the P/E ratio is still above historical averages, it remains within reasonable levels.


Conclusion:

In the world of investing, it’s crucial to take a long-term perspective.  While short-term fluctuations and seasonal patterns may grab headlines, they often mask the broader trends and opportunities in the market.  Since 1944, there have been 13 reelection years, each resulting in positive S&P 500 performance with an average return of 16%[5].  With the S&P 500 up 5.57% as of the end of April, there’s room for optimism for the remainder of the year.

Selling in May and going away might seem tempting, especially amid uncertainty, but staying invested and focused on fundamentals could yield better results in the long run. 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

[1] Detrick, R. (2024, April 30). “Buy in May and Stay? At Least in an Election Year.” Retrieved from www.carsongroup.com/insights/blog/buy-in-may-and-stay-at-least-in-an-election-year/

[2] Smith, G. (2024, April 30). “Sell in May and Go Away?.” Retrieved from www.lpl.com/research/blog/sell-in-may-and-go-away.html

[3] Butters, J. (2024, May 3). FactSet Earnings Insight. Retrieved from www.factset.com

[4] Butters, J. (2024, May 3). FactSet Earnings Insight. Retrieved from www.factset.com

[5] Slimmon, A. (2024). Q1 2024 Portfolio Review and Positioning, Equity Market Update. [Presentation] Morgan Stanley Applied Equity Advisors.