The saying ‘sell in May, and go away’ is a well known Wall Street saying. The saying however is based on good evidence. If you take a look at the S&P500 over the last 71 years you will be able to see why.

Winter boost for prices

Holding the S&P500 from October 31 through to April 30 gives an average return of +6.27%. If you had taken this each year for the last 71 years it would have given you an annualised return of +13.04%. The win ratio would have been 77.14% and the maximum profit would have been 24.48%.

Summer sadness for stocks

The returns from May to October are less impressive. Now compare this to if you bought the S&P500 in May and held it until October 31. You would have had an average return of only +1.17%.

The conclusion

Over 71 years the S&P500 clearly sticks to the rule that it is better, over the long term, to sell in May and go away. Statistically, buying stocks from October 31. This is why many investors are wondering whether now is the time that stock markets will have a deeper correction lower. The seasonal dynamic may or may not play out this year. However, being aware of it is very helpful.