Why You Should Not Sell in May

NYSE: SPY | SPDR S&P 500 ETF Trust News, Ratings, and Charts

SPY – Today’s featured article covers the SPY, and reveals why you should not sell in May. Continue reading for all these important investor details.

Sell In May? No Way. 

Investment adages that rhyme seems to occupy a special hold in people’s brains, and with the recent run-up and still lingering COVID-19 concerns, the advice to “sell in May and Go Away” has taken an especially firm perch in people’s minds.  

What better time than now to lighten both your financial and emotional load and enjoy summer as best you can. The phrase is just one of many based on seasonality trends first popularized by Yale Hirsch in his book, The Stock Trader’s Almanac.

The theory is rooted in historical research which shows that stocks tend to experience their worst performance between the months of May and October. Alternatively, the best months of the year typically occur between November and April. Notice how significant the disparity in average return is between these two six month timeframes.

sp 500 index may 2020

JC Parets at All Star Charts has done a great job digging into the details.

Over the past 70 years, the six-month period, starting in November ranks higher than any other rolling six months in both average return and the percentage of occurrences the market is higher. Likewise, the six months starting May 1st (that’s today!) rank lowest by both of these same measures.

Most US Equity Indexes broke above multi-year highs in late October/early November of last year and went on to rally into the middle of Q1. Things were looking good for stocks and their strong performance made sense within the context of the seasonal trends we’re discussing. Then we experienced an unprecedented selloff and equally impressive rally in the time since.

The stock market just had its best month since 1987 but that means nothing for this exercise as we need to analyze the full six month period. Here are the “best six months” returns for a variety of major averages, factors, and sectors in the US.

sp500 all star charts

The main takeaway should be simply that there is a lot more red than green in this table, but here are some highlights.

  • The average ETF in this table is down by roughly -10%.
  • Of all the major averages, only the Nasdaq 100 (QQQ) was positive.
  • Risk-on areas such as Transports (DJT) and Small-Caps (IWM) were among the worst performers, losing -21% and -17%, respectively.
  • Growth (IWF) was the only positive factor with High Quality (SPHQ) close to breakeven. The remaining five were all lower by at least -13%.
  • The only positive sectors were Technology (XLK) and Health Care (XLV). Cyclical sectors lagged noticeably.

I know what you’re thinking… If that was the “best six months,” what are Equities going to do during the worst six? Probably not too well.

The reason we analyze this seasonal trend is not so we can buy stocks In November and sell them in May. Please don’t do that. That is a fool’s errand and not at all how this information is intended to be used.

The real value comes from measuring the current years’ seasonal performance relative to its historical trend. In comparing the present stock market to its historical tendencies, we can identify divergences that provide insight into the future performance of the market.

For example, one of the most effective seasonal indicators is when the market performs poorly during what is supposed to be its strong season, as it just did.

The fact that the S&P 500 fell -4.5% during what was supposed to be its strongest season tells us there is a good chance it will continue to struggle during its weakest season. This simply adds to the weight of the evidence we’re already seeing which makes us believe US equities are likely to remain under pressure for the foreseeable future.

Want More Great Investing Ideas?

9 “BUY THE DIP” Growth Stocks for 2020

REVISED 2020 Stock Market Outlook– Discover why there is more downside ahead and the Top 10 picks for the bear market.

9 Simple Strategies to REGROW Your Portfolio – Learn the 9 strategies employed by Steve Reitmeister to generate consistent outperformance…even during bear markets.

 


SPY shares were trading at $288.99 per share on Tuesday afternoon, up $5.42 (+1.91%). Year-to-date, SPY has declined -9.68%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author: Option Sensei


Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for TheStreet.com, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
SPYGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Christmas in July for Stock Investors!

Yes, the S&P 500 (SPY) made new highs again on Tuesday. But really it is the 6X gain for the Russell 2000 small cap index Tuesday...and 12% gain this past week that is grabbing everyone’s attention. Let’s discuss why this is happening...if it will continue...and my 12 favorite stocks to rally in the weeks ahead. Read on for more...

3 Promising Tech Stocks Under $40 for Long-Term Investment

The increasing demand for technology services worldwide fuels the tech industry. Amid this backdrop, it could be wise to buy under $40 tech stocks, such as HP Inc. (HPQ), Box, Inc. (BOX), and Teradata Corp (TDC), for long-term investment. Continue reading…

3 MedTech Stocks to Add to Your Portfolio in July

The MedTech sector’s promising future is driven by technological advances, unceasing demand for medical treatments due to an aging population, and increasing global incidence of diseases. To that end, strong MedTech stocks such as Tactile Systems Technology (TCMD), Electromed (ELMD), and Embecta (EMBC) could be wise portfolio additions in July. Read more...

3 Bank Stocks Benefiting From High Interest Rates

Amid global economic uncertainties, major U.S. banks like JPMorgan (JPM), Wells Fargo & Company (WFC), and PNC Financial Services (PNC) have defied expectations with strong revenue and earnings reports for the second quarter. Considering their robust performance, investing in these stocks could offer stable returns to your portfolio. Read more…

Investor Alert: Load Up on Small Cap Stocks!

Large caps time in the sun is now over and thus no shock that the S&P 500 (SPY) pulled back from recent highs. It is time for small caps to shine which was clear in their nearly 4% gain Thursday even as the Magnificent 7 was bathed in red. Why is this happening? What comes next? And what are the best stocks to own now? The answers to all that and more are shared in the commentary below...

Read More Stories

More SPDR S&P 500 ETF Trust (SPY) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All SPY News