Any Merit To "Sell In May And Go Away"?

You have heard us before mention the saying “sell in May and go away”. For decades, Wall Street has provided investors with some wisdom based on a seasonal affect that might suggest that traders sell in the month of May and don’t return until later in the year.

I have heard that this originated in England and it seems traders have adopted the practice. Studies have shown that in many years, not all, stocks don’t perform as well in the months between May and October. If the practice is actually put in motion, you could argue that this is definitely an event of market timing. Market timing is risky as we don’t know which way the market will move at any moment in time. It’s interesting that in the last three years, a market correction of between 10%-19% occurred in April. But, it has not occurred this year.

So that’s history, but what about now? At this writing, the month of May has produced a 4% increase in the S&P 500. It seems that nothing phases the upswing we are witnessing. We know many investors have been “out of the market” for quite some time and have managed to miss the bull market leading to attempts to chase returns and catch up on several years of investing. This translated to record inflows of investments into stock funds the first quarter of the year. Could this be leading to a support of stocks in May—even though economic data is what we are calling a “mixed bag” of information?

Some economic items we know are: China is slowing due to several reasons, U.S. corporate earnings are mixed, Europe is still “on fire” and is very weak with several of the nations already in recession including Germany well on the way themselves. However, on the positive side of the data, we see the U.S. oil and natural gas potential is tremendous, manufacturing companies are returning to the U.S. due to higher labor costs and energy overseas, and our housing market seems to be well on the way to an eventual recovery (however, it will more than likely take several more years for this to fully recover).

As we have already observed this month, with the data mixed, our U.S. markets could very well hold onto the gains we have seen. But on the other hand, we have not seen a correction for more than a two-day stretch since November 2012. This is highly unusual. We will wait and see what the end of May holds.