Indicator of the Week: The Best Day of the Year to Sell Stocks

Examining the impact of stock seasonality and sentiment on the S&P 500 Index

Senior Quantitative Analyst
May 3, 2017 at 6:30 AM
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For those familiar with stock seasonality trends, "Sell in May and Go Away" is a popular saying. Below, we'll take a look at how the S&P 500 Index (SPX) tends to perform over the next six months, and tell you the best day of the year to sell stocks, if history is any indicator.

Sell in May and Go Away?

If you break up the year into two six-month periods of November through April and May through October, and then compare stock returns between the two time frames, you can see where the "Sell in May" saying comes from. Over the last 50 years, the S&P has averaged a gain of 6.48% from November through April, and has been positive 76% of the time. From May through October, the average return is just 1.13%, with 64% of them positive. The second table shows more recent data over the past 10 years, and it indicates a similar trend.

SPX 5010

 

The Best Day to Sell Stocks

The chart below shows the typical path the S&P 500 has taken over these two time periods. The good news is that stocks have done well from May to mid-July. Specifically, from May through the peak day of July 17, the S&P has averaged a gain of 1.34%. That annualizes out to about 6.5% per year, which isn't terrible. After mid-July is when the index has underperformed the most. From July 17 through the end of October, the SPX has averaged a slight loss. So, if past is prologue, July 17 would be the best day of the year to sell stocks.


SP Month to Month

SP Last 50 Years

 

Too Much Optimism In the Stock Market?

According to the weekly Investors Intelligence (II) sentiment survey, there is a significant amount of optimism in the market. The percentage of bullish investors in that survey is 54.7%. That does not bode well for stocks over the next six months. As I pointed out above, we are entering a historically bearish part of the year. That tendency is exacerbated when this poll shows these levels of optimism. In fact, the SPX has averaged a loss of 1.22% over the next six months, when the percentage of II bulls topped 50% or more. Also, more than half of the returns were negative in those instances. Hopefully we break that trend this year. 

SPX Returns

 


 

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