Sell in May and Go Away
Candlefocus EditorAnalysis of the S&P 500 Index since 1990 has shown that stocks have historically averaged around a 7 percent return from November to April while they average roughly a 2 percent return from May to October. However, 2020 has been an outlier in this historical pattern, as stocks have largely managed to shrug off losses due to COVID-19 and the global economic slowdown.
It is important to note that despite the historical pattern of the stock market this adage does not guarantee any results in future years and it is possible for the market to perform differently than what is expected. This means that investors should not rely solely on this advice but rather should look at all of the data before making any trading decisions. Furthermore, it also serves as a reminder that investors should always understand the risks of investing and make sure to have an appropriate risk to reward ratio when selecting stocks.
The month of May is typically considered the start of the weak period and the end of the strong period, so the adage “sell in May and go away” advises investors to rotate into less economically sensitive stocks and protect their portfolios during this period. This means that investors should look for stocks that do not rely heavily on macroeconomic indicators and trends, such as utility stocks and consumer staples. This means investing in stocks which have comparatively stronger earnings, a stable track record of dividends and steady cash flows.
In conclusion, while “sell in May and go away” is an old adage that has gained traction over the years, investors should be cautious and not make decisions solely based on it. Investors should stay informed about the market, do their research and look for stocks that have an appropriate risk to reward ratio. When possible, it can be beneficial for investors to rotate into less economically sensitive stocks during the summer months as this could help shield their portfolios from market volatility.