Sell in May and Go Away?

“Sell in May and go away” is a popular financial-world adage. It is often followed up with “…but remember to come back in September”. This supposed piece of wisdom recommends that investors turn their backs on stock markets from (the end of) May to (the end of) September.

Looking at the average annual progression of the U.S. equity market over the past 30 years, it is true that not very much happens in the period that, according to the saying, investors should avoid. “The reason given for the relatively flat performance is the holiday season,” says Philip Bold, Porfolio Manager at Ethenea. “Between June and September, investor trading and company impulses are generally reduced.”

However, the average performance in this period, while less strong, is still positive. Philip Bold : “An investor who exited the equity market lock, stock and barrel between June and September, as the saying goes, would tend to fare less well than with a buy-and-hold approach.”

While a systematic assessment of such a phenomenon depends on many factors, including the period in question, choice of index and the exact methodology, this example is enough to show that generalisations should usually be taken with a pinch of salt. They do not take account of the complexity of the equity market. That is also the case this calendar year, which so far has not followed the seasonal pattern we have seen in the past. Philip Bold : “Rather, what is key to a reasonable assessment of the overall market is the current context - and drawing from a whole array of valid economic, fundamental and technical indicators is part and parcel of this.”

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