Investment professionals are cautioning against automatically following the time-honored Wall Street saying ‘sell in May and go away’ as market participants debate whether to exit positions before what has historically been a challenging period for stocks.
The S&P 500 has mounted an impressive recovery, bouncing back from nearly a 10% drop in just 11 trading sessions following a sell-off caused by global oil supply disruptions. This quick rebound has market watchers questioning whether the difficult times are behind us or if seasonal headwinds lie ahead.
Historical data from CFRA shows that since 1945, the S&P 500’s average return during the May through October period has been a modest 2%, significantly trailing the roughly 7% average gain seen from November through April. However, the past decade tells a different story, with summer months delivering a stronger 7% average return, including a remarkable 22.1% surge last year.
‘You hate to say to ignore ‘sell in May, go away’ … but it hasn’t worked at all in the last decade,’ explained Ryan Detrick, chief market strategist at Carson Group.
‘Investors would really have hurt themselves if they blindly, truly sold in May, went to cash, or even if they went defensive,’ Detrick added, pointing to market performance over the past ten years.
A Reuters analysis reveals that since May 2016, maintaining a continuous $10,000 investment in the S&P 500 would have grown to approximately $34,000, nearly doubling what investors would have earned using a sell-in-May approach that moved to cash during summer months.
Market analysts point to several encouraging factors for equities this year that argue against becoming overly pessimistic based solely on calendar patterns. Stock prices have rebounded sharply from recent declines as concerns about major escalation in the U.S.-Iran conflict have diminished. Robust corporate earnings have lifted investor confidence, while the American economy has demonstrated strength despite energy market volatility from the Iran conflict.
‘If there were ever a year where you might want to throw seasonality out of the window, it might be this one,’ noted Jim Carroll, portfolio manager at Ballast Rock Private Wealth.
However, Sam Stovall, chief investment strategist at CFRA Research, highlighted one significant factor that suggests caution about abandoning the sell-in-May approach: 2026 is a midterm election year when Americans will vote for Congressional representatives.
Reuters analysis shows that in half of the last ten midterm election years, the S&P 500 fell during the May through October timeframe, posting average declines of roughly 1.5%.
Additional concerns include the ongoing U.S.-Iran situation and its potential impact on global economic growth. Market participants must also navigate leadership changes at the Federal Reserve, with Kevin Warsh anticipated to succeed Jerome Powell during a period when experts predict a more volatile interest rate environment.
‘There’s certainly an awful lot out there to worry about,’ Stovall observed.
Despite these challenges, analysts believe strong market momentum could help equities overcome potential obstacles. CFRA data indicates that since World War II, markets have typically gained more than 8% in the three months following complete recovery from pullbacks ranging from 5.5% to 9.9%.
‘Yes, it’s a midterm year. Yes, ‘sell in May’ is coming, but the trend going into this is very important,’ Detrick emphasized.
