Sell This May?  No Way!

“Sell in May and go away” is a quaint market adage that we haven’t heard much this month.  After a historically stupendous two-month run, even slight advances in key indices can bring us a trifecta of new records, perpetuating the positive momentum and investor sentiment that has driven the S&P 500 (SPX) higher for nine straight weeks.  Selling this May – or in fact, many of the recent prior Mays – has not been a winning trade.

In fact, SPX has experienced only one down May in the last 13 years.  Only July and November can make that same claim.  The only prior down May in that period was in 2019, when it fell 6.58%.  In fact, each of the last two Mays has featured advances of similar magnitudes to this one.  Furthermore, each of the prior three Mays, including 2023’s very slight upturn, was followed by substantial gains in June.  As the table below shows, only three June swoons have occurred since 2013 as well.

As I prepared to write today’s piece, I searched for other times when I’d used the term “sell in May.”  I found a piece entitled “Sell in May and Go Away… But Go Where?”  As we wrote at the time:

We’ve all heard the phrase “Sell in May and Go Away.”  The adage is cute, but quite incomplete.  It doesn’t tell you what to sell and where to go. 

Interestingly, that piece was written on May 2, 2022.  That was the start of one of the worst Mays in recent history, when the index eked out the smallest of gains – just 0.01%.  It also followed an April when SPX fell by 8.8% and preceded an 8.4% drop in June.  That was indeed a wonderful May to go away, and I’m pleased to see that our “where to go” was:

Maybe the best place to go is boring old cash.  Yes, in an inflationary environment it loses its purchasing power, but it is losing it more slowly than other assets. 

We’ll file that under “sometimes even a blind squirrel finds an acorn.”  Unfortunately, that offers no guidance about what to expect going forward. 

History is not a particularly helpful guide.  In a simplistic sense, we can say that it rarely pays to be anything other than long, since SPX has been down in only 7 of the 41 months in the table above, and only 3 of the 13 prior Junes.  So, just go long and stay long, right? 

The most recent example of an April/May period with returns similar to the current one was in 2020.  June 2020 was a solid month too, with a 1.84% gain.  Unfortunately, there are huge, concrete differences between then and now.  Remember, that was the immediate aftermath of the Covid-induced bear market, and that period featured a dual salvo of massive monetary and fiscal stimuli in response to the crisis.  This two-month stretch featured a change to a rate hiking regime from one that anticipated rate cuts, though it has also featured sharp bumps in reported and anticipated earnings in a wide range of companies, primarily those that benefit from AI-related largesse.

We found two other examples this century with similar setups.  In 2009, SPX rose 9.39% in April and 5.31% in May.  That led to a mere 0.02% rise in June.  Remember that this was occurring at the end of the Global Financial Crisis.  Stocks bottomed in March after a bout of then-huge stimuli put a stop to a massive two-year bear market.  In 2003, SPX rose 8.1% and 5.9% in April and May, respectively, which led to a 1.13% gain in June.  Remember that the 2001-02 period also featured a bear market, and that recovery began in March of that year.

As a result, we can’t find a recent example of such a solid April-May period that did not result from measures that were designed to stem a prior bear market.  The last prior example was in 1997, when we saw April, May, and June gains of 5.84%, 5.86%, and 4.35% respectively, and those continued into July and beyond.  There are certainly plenty of current comparisons to the internet bubble era, but we need to consider whether one from that period’s start is relevant in a bull market that is over 3.5 years old.  By the way, SPX had 7.68% and 0.51% rallies in April and May of 2000, though the prior two and subsequent four months were disastrous.