Sell in May and Go Away? | Bianco Research

It is that time of the year when the old adage, “Sell in May and go away” will be heard more than once on financial television channels and seen in multiple financial newspapers. While we have always highlighted seasonal patterns as they emerge, we are quick to note they are not meant to be used as a market-timing tool.

The charts below illustrate one of the problems in dealing with seasonal data. Monthly S&P 500 data goes back as far as 1928, which might seem like a long history. When dealing with monthly returns, however, that does not lead to a very large sample size.

The first chart shows the average return for the S&P 500 each month since January 1990. Over this time period, the summer includes the three worst-returning months of the year. Sell in May!

The next chart takes a longer-term perspective, showing the average monthly returns since January 1928. When viewed over this time frame, returns during the summer look much stronger. July even ranks as the best month to own stocks! Selling in May would not work quite as well in this case.

Issues with sample size are only one obstacle to using monthly seasonal data. Even if these historical trends persist, traders would have to execute the same seasonal trade every year over a long period of time. Again, these are not meant to be used as market-timing tools. They simply highlight trends that have formed over longer time frames that can be used as an additional data point in already-formed views on the markets.

The interactive visualization below offers a similar breakdown of many different assets. Those interested in diving further into seasonal trends can choose different timelines or assets.