Old wisdom of ‘sell in May’ back in focus as stock market churns

While the "sell in May" pattern is not written in stone, the comparatively poor May-October performance of the S&P 500 has been more pronounced during years when stocks got off to a weak start. Photo by Seth Wenig/Associated Press/Postmedia files

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One of the best-known market trends, the “sell in May” effect is backed by decades of historical performance: Investing in a fund that debuted in 1993 and tracks the S&P 500 during the May-October period yielded a cumulative return of 171 per cent, compared with a 731 per cent gain for November-April, an analysis from Bespoke Investment Group found. The pattern last held from November 2023 to October 2024.

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Seasonality is among a multitude of factors investors are crunching to get a read on how stocks might behave in coming weeks, even as their faith in many once-reliable indicators has been shaken by the unpredictability of President Donald Trump’s tariff policies. Taken alone, the old adage would argue against hopping on a searing rebound that has seen the S&P 500 recover about 12 per cent from its lows of the month. The index is still down about 5.5 per cent year-to-date.

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“The scales are tipped in favour of the ‘May-Sellers’ this year,” said Tyler Richey, co-editor at Sevens Report Research, adding that the risks are skewed toward the S&P 500 suffering another big decline next month.

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Meanwhile, a longer-term view illustrates the “sell in May” concept even more starkly: Investing in the S&P 500 in the May-October span over the past 74 years has garnered a cumulative return of just 35 per cent, compared with an 11,657 per cent gain during the other half of the year, an analysis from the Stock Trader’s Almanac showed.

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The bounce in stocks will run a gauntlet of earnings reports and market data this week, culminating in Friday’s U.S. employment report.

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Some indicators have been flashing buy signs, including a plunge in investor sentiment earlier this month and the S&P 500’s close above the 5,500 level. That marks a 50 per cent retracement of the index’s peak-to-trough decline, which some chart-watchers say indicates that investors are back to buying the dip.

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Seasonality paints a more cautious picture. While the pattern is not written in stone, the comparatively poor May-October performance of the S&P 500 has been more pronounced during years when stocks got off to a weak start. A fund tracking the S&P 500 averaged a decline of 0.4 per cent in May-October during years when it started with negative returns through April, the Bespoke’s data showed. The fund, SPDR S&P 500 ETF Trust, is down 5.4 per cent this year through Tuesday.