Sell in May Strategy: Timeless Wisdom or Outdated?

The classic Wall Street adage “Sell in May and go away” is once again in the hot seat, as investors reassess its validity in the current market climate. This time-honored strategy posits that stocks tend to underperform from May through October, hinting that selling off assets in May, sitting on cash through the summer doldrums, and then buying back in when prices are lower in autumn might be a savvy move.

This concept has roots that snake back through financial history, with some pointing to the summer lull in activity or bonus payout schedules as culprits, while history buffs can’t help but note that some of the market’s darkest days—including the 1929 crash and Black Monday in 1987—occurred during these months.

What the Scholars and Analysts Say

A slew of studies, ranging from academic deep dives to eagle-eyed market research, have probed the “Sell in May” phenomenon, taking stock performance apart to see if the trend holds water.

Despite spotting some patterns that align with summer slumps and a slightly bumpier ride during those months, the consensus is clear: the market tends to march upwards over time, with short-term dips merely blips on the radar.

The wisdom of the day suggests that it’s probably wiser to stay invested than to try to play a guessing game with the market each year. Investors are often reminded that they’re better off paying attention to solid indicators such as earnings, valuations, and interest rate trends when managing their investments.

Is There Proof in the Pudding?

Lawrence Fuller from The Portfolio Architect’s Investing Group has thrown his hat in the ring with some interesting findings about the “Sell in May” approach. Poring over the past 40 years of data, Fuller notes that the S&P 500 has enjoyed a profitable summer more than three-quarters of the time. What’s more, if the S&P starts the year on a high note with gains through April, the likelihood of a year-long bull run is strong.

Doubts and Defensive Moves

But for all the strategy’s less-than-stellar track record, there are those who remain unconvinced. The bears among us spotlight the staggering rally that lifted off in late October and reached its zenith by late March, where the S&P 500 leapt by an eyebrow-raising 28%.

Yet, after the market took a 4% tumble in April, the more cautious onlookers are keeping their eyes peeled for signs of a U-turn. Toss in concerns like inflationary pressure, a slow-down in spending and GDP growth, and a cooling risk appetite, and it’s no surprise that some are bracing for a possible market correction and see the potential for a timely investment re-entry.