You’ve probably heard of the cliché saying “sell in May and go away”. Many traders seem to believe in this seasonality pattern, and the market performs very well in the Winter & Spring months versus other times of the year. Summer trading is notoriously “boring” and there is often much lighter volume in the June/July/August months as many large institutional and hedge fund managers take this time of the year off.
With the help of Senior Quantitative Analyst Rocky White, I was able to put together a table showing this historical data since March, 2000. I chose March, 2000 as a starting point as this is the time when we began what is considered a new secular bear market, after the previous secular bull market that lasted from roughly 1983-2000. To clarify, we are most certainly in a bull market right now that began in March, 2009. This has been one of several cyclical bull markets since the new secular bear began in 2000.
The data in the table (featured below) really says a lot about “sell in May and go away”—November-April shows stocks tend to perform well during these 6 months, and May-October shows that they tend to perform rather poorly. The S&P 500 shows an average return of +3.37% for November-April since 2000, and an average return of -1.74% from May-October—this is hard to argue with. Combine this with the fact that we are already up nearly 17% since the S&P 500 bottomed in November of last year (at around ~1,343) and this seasonality pattern is showing signs again that November-April is the time to buy.
Now, does this mean that I am implying that you should sell after this month? I’d say it is tough to rely on only one set of data, and if you followed this seasonality pattern every year you would have missed out on the rallies in 2003 and 2009. I do think it helps to be aware of such seasonality patterns, and to always continually analyze market breadth, sectors, and the various intermarket relationships to see if we could be setting up for a correction in May. Honestly, I have no idea where we are headed, but I do find this data to be rather intriguing. In my opinion, trading with an awareness of seasonality can certainly be beneficial in the long-run.