Historically, the months of May to October perform worse than November to April. But those months might be getting dragged down because of a few memorable meltdowns.
The adage is well known among investors: Sell in May and go away. The reasoning behind the strategy is that May to October usually performs worse than November to April.
Right now, investors who follow the strategy are probably thankful as renewed Europe concerns are weighing down the markets. Tuesday afternoon the S&P 500 hit lows from early March and the Dow had dropped 156.21 points. However, this broad crisis might be proving that May unfairly gets a bad rap.
If there’s one thing investors can count on with the stock market it’s that it cannot be predicted. All we have to go off of is historical performance and even that, we have been told countless times, is no indication of future performance. And in the case of the month of May, historical data is a little misleading.
More recently, May has been doing quite well for itself. According to , during the last 40 years, there have been nine times when the S&P hit its high during May 1 to Sept. 30. That’s not very good, but seven of those nine times occurred since 2001.
So if May is doing so well recently, then why the bad rap, still? points out that May is getting dragged down because of a few very memorable meltdowns. The mortgage meltdown hit during May to October, as did the tech bubble burst of 2001 and 2002, and the European debt crisis in 2010 and 2011.
“When these substantial losses are taken out of the mix, the average price-only return of the S&P 500 in the May-September period actually is a respectable 3.55% in the past 40 years,” reports.
Also, investors probably very clearly remember the heart-stopping “Flash Crash,” which happened in May 2010, when the Dow lost 1,000 points in just minutes.
While looked at the S&P, analyzed the Dow Jones Industrial Average. And while May was the second worst month for average returns during the first 94 years of the Dow’s history, in the last two decades of the 20th century May ranked third best for average returns.
“Even if you're inclined to follow the Sell In May and Go Away seasonal strategy, there is no reason — either statistical or theoretical — to immediately sell once the calendar flips from April to May,” according to .
Read more: May is No Longer a Bad Month for Stocks