Could April Showers Mean May Flowers for Stocks?

A look at seasonality data as Wall Street moves into a new month

Senior Quantitative Analyst
May 4, 2022 at 8:00 AM
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This week, I’m looking at seasonality data that is relevant as we move into May. The table below summarizes monthly returns for the S&P 500 Index (SPX) since 1950. May has been a slight underperformer, averaging a return of 0.24, with 60% of the returns positive (the typical month gains 0.72% on average, with a 60.5% chance of being positive).

April, however, has typically been a strong month, but it lost over 8% in 2022. Below, I’ll explore if this changes anything in the short term, and look at whether or not it impacts longer-term seasonality, too.

iotw chart 1 may 3

May After a Weak April

The table below shows every year that the S&P 500 was down 2% or more since 1950. In these years, the first week of May has usually gone well, but the outperformance is short-lived. On average, the index lost 0.28% in the first two weeks of the month, with just 42% of the returns positive.

The full month of May lost 0.56% on average, with only 33% of the returns positive. In addition, out of the eight years April fell at least 3%, May was down in seven, averaging a 2.96% loss. This indicates that especially poor April returns have led to especially poor May returns.

iotw new chart may 3

Longer-Term Seasonality

May through October is, historically, the weakest six-month period of the year for stocks. Since 1963 (I will explain why I went back to that year momentarily), the next six months have averaged a gain of just 1.65%, compared to a 6.67% return the other six months of the year.  

iotw chart 4 may 3

Next, I broke down those returns based on stock market sentiment. For a sentiment gauge, I’m using the weekly Investors Intelligence (II) sentiment survey, which we have data going back to 1963 (that's why I used that year). The editors at II collect published market newsletters and determine the percentage that are bullish, bearish, or expecting a short-term correction.

The table below summarizes the May through October SPX returns based on the percentage of bullish newsletters in the II survey. The most recent survey showed just 34% of newsletters were bullish, which is a fairly small percentage. This is good news because the S&P 500 has usually performed better over the next six months when the newsletters have been light on bullish sentiment. May through October has averaged a respectable 3.21% return, with 73% of the returns positive when the bullish percentage was below 40%. 

iotw chart 5 may 3


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