The Truth About "Sell in May and Go Away"

One old adage advises investors in stocks to "Sell in May and Go Away." It's based on the premise that the six "summer" months from May through October typically register lower gains than the six "winter" months of November through April. Technical analysts at Bank of America Merrill Lynch, a division of Bank of America Corp. (BAC), and Mark Hulbert, a longtime scrutinizer of investment strategies, offered their own views recently. Other analysts point to empirical studies on the superiority of buy-and-hold investing to market timing strategies such as this.

Analysts at Merrill Lynch say that May registers a stock market advance 57% of the time, while the average movement is a tiny decline of 0.06%, as reported in their Monthly Chart Portfolio of Global Markets dated April 18. Looking at 3-month seasonal data going back to 1928, the June-August period typically is the second-best of the year, with gains 63% of the time, and an average return of 2.97%, Merrill indicates. Moreover, they write that a weak May normally heralds a "more robust" June-August period. If there is any time to sell in summer, it normally would be in July-August, Merrill adds.

Based on new research, the "Sell in May and Go Away" seasonal pattern, also called the Halloween Indicator or the Halloween Strategy, actually only holds true in the third year of a U.S. presidential term, asserts Mark Hulbert in his MarketWatch column. In the other three years, there is no statistically significant pattern, he says. Accordingly, he advises his readers that "there's nothing to bet on this year."

Analyzing data from 1897 onwards, Hulbert finds that the "winter" period in the third year of a presidential term averages an 11% gain, while the "summer" averages a slight loss. In years one, two and four, "winters" are up about 3%, while "summers" gain about 2%. Hulbert is noted for analyzing the track records of investment newsletters through his Hulbert Financial Digest (published 1980-2016) and his Hulbert Rating system.

Using 142 years of data, analysts at Virginia-based CXO Advisory Group looked at three strategies: (1) holding stocks November-April and cash May-October (i.e., "Buy in May and Go Away"), (2) doing the opposite and (3) holding stocks year-round. While strategy (1) delivered better returns than (2), strategy (3) was by far the best overall, its superiority magnified when transaction costs were factored into the analysis, according to Forbes magazine. A similar study, based on a more recent 20 years' worth of data, yielded the same conclusion, per Wall Street Daily.

Equity strategist Sam Stovall of S&P Global Market Intelligence has voiced his own skepticism about "Sell in May and Go Away." Last year, noting that the S&P 500 Index (SPX) had advanced an average of 1.4% in the "summer" months since 1945,  Stovall advised clients that "a 1.4% annualized return is better than one would get in cash, at least in the recent past, and the S&P 500 rose in price during this seasonally soft period 63% of the time," as he was quoted in USA Today.