It is that time of year again as we have begun hearing the old market adage: “sell in May and go away” (two articles today alone).1 There are may different versions of this tale: sell before Memorial Day then buy back after Labor Day or sell during May and don't buy until October and so on. While it would be great to sell our positions and go on vacation for the summer every year, we are always very skeptical of such sentiment.
As we also mentioned at the beginning of the quarter,2 a strong start to the year is no more reason to expect a in “sell in May” scenario. Analyzing years where the S&P 500 was up more than 10% at the end of April, we found that 74% of the time the market is higher at the end of September for an average gain of 3.5%. During those May though September periods, average low the market traded down to was only 4.9%.
We are not attempting to suggest that the market could not stumble over the summer or trading couldn’t be choppy. But instead we are cautioning against putting undue focus on a market “saying” or becoming overly defense due to it.
As we pointed out in the last issue of Reminiscences:
Our motto continues to be ‘predicting rain doesn’t count, building arks does.’ Hence, the fact that the market usually rallies around Easter (or doesn’t) or that the last half of the month will usually outperform the first half may be useful for bar bets, but they are not investment inputs.3
1“Stocks Greet May with Rare Rally”. WSJ. 5/2/12.
“US Equity Bulls Push Back Against “Sell in May”. FT. 5/2/12.
2”Market Pattern After a Strong Start”. 12-S-29. Birinyi Associates, Inc. 4/3/12.
3”Reminiscences”. Birinyi Associates, Inc. May 2012.