Sell in May and Go Away? Maybe Not.

Should you "Sell in May and Go Away"? One index tends to outperform in the looming six-month stretch

Apr 29, 2016 at 2:41 PM
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A long-held trading theory says to "Sell in May and Go Away." But is that really a wise strategy? Schaeffer's Senior Quantitative Analyst Rocky White took a look at seasonal trends for the Dow Jones Industrial Average (DJIA), S&P 500 Index (SPX), Russell 2000 Index (RUT), and Nasdaq Composite (COMP) -- and while three tend to perform better in the November-through-April period, one tends to outperform from May to October.

SPX and DJIA Since 2000

Russell and COMP since 2000

As you can see, the tech-heavy COMP is the only index to perform better from May to October than from November to April. Since 2000, the index has been positive 62.5% of the time during the upcoming six-month stretch, compared to 56.3% of the November-through-April range.

Breaking it down by month, since 1980, the Nasdaq has averaged a 1.4% return in May -- in the middle of the pack, and on par with April. As far as percent-positive, though, May is second only to November, at 63.9%.

Nasdaq returns by month since 1980

For comparison, let's dig deeper into how the broader S&P 500 Index has performed each month since 1980. While the index has hands-down performed better in the November-to-April stretch, the month of May hasn't altogether been a terrible time to hold stocks. 

SPX Monthly Since 1980

Over the past 36 years, the month of May has produced an average SPX return of about 1%, and has been positive two-thirds of the time. This may feel like a letdown, coming right out of April -- the best month of the year, historically, with its average return of 1.6%. But May actually ranks right in the middle of the pack, with the sixth best average of any month. Looking beyond May, however, things get dicey. But perhaps "Sell in June" just doesn't have the same ring to it.

In conclusion, bulls shouldn't abandon ship just yet. In fact, White recently noted two more signs that stocks may be setting up for a hot summer. Plus, for some of the best and worst May performers, read Can These 2 Healthcare Stocks Outperform in May?, 3 Stocks Set Up for Monster Gains in May, and Will May Be Miserable for These 3 Retail Stocks?.


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