It’s time to sell in May and go away, said money manager Mark Yusko last week.
Yusko thinks markets have become “over-ebullient” following an “unbelievable” start to 2021, but seasonal factors also concern him. “If you think about the reason ‘sell in May and go away’ exists, if you hold from May till October you usually lose a little bit of money,” he said.
Investors should look at what the data says rather than following such advice. Historically markets have underperformed over the May-October period. The “sell in May” phenomenon is a genuine curiosity, with one study finding it in 36 out of 37 countries.
Nevertheless, the seasonal factor should not be overstated. Research indicates the effect disappears if a handful of extreme losing months are excluded. The S&P 500 has actually enjoyed above-average monthly gains in June, July and August over the past century, according to market strategist Ed Yardeni. May has been flat, with September being the only obvious losing month.
Over the past 50 years, the index has averaged gains of 1.61 per cent from May through October, notes Schaeffer’s Investment Research – much poorer than November-April (6.93 per cent), but a gain nevertheless. Returns have been positive 68 per cent of the time. The trend over the last 20 years is similar.
The “sell in May” data certainly isn’t a cause for celebration, but nor should it spook ordinary investors.
