“Sell in May, and go away!” It’s a well-known Wall Street saying. If you are new to the markets, or even if you are more seasoned, it can be easy to overlook the wisdom of that short phrase. So, here is a quick snapshot of the S&P500 over the summer period to underscore just how weak the stocks are from May through to the end of October.
Over the last 72 years If you had bought the S&P500 from the end of May through to the end of October each year then you would have only had an average return of +1.29%.
In contrast, the period between April and October is far stronger. You can see that holding the S&P500 from October 31 through to April 30 gives an average return of +6.53% over the last 72 years. So, If you had taken this each year for the last 71 years it would have given you an annualised return of +13.60%. The win ratio would have been 77.46% and the maximum profit would have been 26.31 which was last year.
So you can see that 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 at the back end of October is a great time to buy. This is also matched by large fund flows around this time, so this is the reason for the gains in the S&P500 over this time of the year.