The Verus Team

Sell in May?

Derek Majkowski. Any opinions are those of Derek Majkowski and not necessarily those of RJFS or Raymond James. Opinions expressed are as of this date and are subject to change without notice.

The old adage – “Sell in May and Go Away” was derived from the historical underperformance that the market showed during the months of May through October compared to those months of November through April.

According to Bespoke Investment Group, a $100 investment in S&P 500 at the beginning of 1945 and invested only during the six months of November through April would be nearly $8100 through the end of April of this year. That same $100 invested in the six months of May through October would be worth only $220 as of the end of April.

Countless debate has surrounded the topic of selling in May, and it is important to note that we are using only the S&P 500 as a benchmark. Generally speaking, the idea was that seasonal forces and people being away on vacation over the summer impacts the performance of the markets during those months. Also, the lighter volume during the summer would cause things to be potentially more volatile during those months, and in essence theoretically put more pressure on stocks.

Over the past several years however, the same performance history has not exactly played out. In 2017, failing to participate in the market (measured by the S&P 500), one would have missed out on approximately 8% return from 5/1/2017 through 10/31/2017.

If an investor bought back in on 11/1/2017 and recently sold on 4/30/2018, that person would have earned in the S&P 500 approximately 2.6% over that period. That same person would have also missed the approximate 2.4% return just in the month of May.

Now we are only a month into this current six month segment, and a lot can still happen over the coming months, but the point should not be missed.

As highlighted above, Bespoke Investment Group ran comparisons on $100 invested during each six month interval since 1945. In the same report, they highlighted that the same $100 invested and held since 1945 in the S&P 500 (versus trading in and out over each six month interval) would be worth nearly $18000 today. Once again proving that while we enjoy trying to handicap the markets from one period to the next, buying and holding over the long-run ultimately pays off.

Stepping back from the reality that investing in stocks must be suitable for your risk tolerance, and noting that we are not at all discussing asset allocation, or proper diversification into different asset classes and / or geographic regions; it is worth noting. Specifically that long-term investing in stocks will have ups and downs, strong periods and weaker ones.

While we find ourselves often trying to create a reason for why things happen in the markets, I am again reminded that from one day, month, or six months to the next, we have really no true idea on how markets will perform. Over time however, and if that works with your time horizon, stocks and markets have gone up.

So when I see the comment “Sell in May and Go Away”, the only part I resonate with is the part about going away. It’s almost summer, and everyone should find some time to go away and spend some time with family and friends.

The markets will be here when you get back.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Bespoke Investment Group is not affiliated with Raymond James.