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The SP 500 just turned the page to a new month, scoring a remarkable gain in May of 6.15%. It jumped 4.8% May of last year. This May was the the second best month of May for the SP 500 since 1950. The best May was 1990 when it flew higher by 9.2%. And, last May's gain was just the 10th time the SP 500 gained greater than 4% in the month of May since 1950. So, May's have been great months for stocks. Sure looks like it. Well, less great when we stretch the performance for the SP 500 in the month of May over its long history. After all, there has to be a reason for the stock market adage, "Sell in May and go away". The phrase gained popularity in the 1970s-1980s, especially through media commentary and investment advisory circles (the incubator for most catchy stock market sayings you've probably heard). That, though, is only half of the Wall Street sage. It finishes with, "Come back in November." Since I remember those days in the market in the '80's, back then I made up my own version, "Sell in May and go away, but remember November to buy back". Though the stock market adage's origin was based on seasonal market pattern observations, it may not have been a foundational stock investment strategy for many. Here's a few more historical stats on stocks in May and perhaps the thinking behind the adage.
"Sell in May and go away" gained momentum with what the Stock Trader's Almanac calls the "The best six months" and "The worst six months". Its' historical data showed that the top performing 6-month rolling period since 1950, on average, was November through April. The "worst six" were May through October. So, they said, investors should "sell in May and go away"—and "come back in November." The "strategy" supported by the Stock Trader's Almanac simply bought the Dow Jones Industrial Average November 1st and held to April 30th each year. It then switched into fixed income investments by selling the stock index and buying bonds May 1 and holding to the end of October. The research shows from 1950 through 2023 the Dow gained on average 7.4% between November 1 and April 30, vs. only 0.8% during May 1 to October 31 over the same period. Separate research reveals that since 1990, the S&P 500 has averaged a return of about 3% annually from May to October versus about 6% from November to April. So, the pattern persists. Why? In a word, "seasonality". Here's more on a combination of stock market patterns and factors resulting in market seasonality.
- Institutional and Investor Behavior:
Year-End and Tax Strategies - Many investors, mutual funds, and institutions make portfolio adjustments at year-end or early in the new year, which can lead to increased trading activity and upward market movements during the November-April period. "Tax-loss harvesting" (Tax-Loss Selling) strategies and portfolio rebalancing often occur late in the year, boosting market performance towards year-end and early the next year.
- Corporate Earnings Cycles:
Earnings Season - The fourth quarter (October–December) and the start of the new year often bring strong corporate earnings reports, which can drive market gains through optimism about future growth.
Seasonal Growth - Many companies report their most significant earnings or guidance updates during these months, boosting investor confidence. Regardless of quarter, "earnings season" adds to market volatility each quarter.
- Reduced Market Volatility:
Summer Lull - During the May-October period, trading volumes often decline due to vacations and reduced institutional activity, which can lead to lower returns and sometimes increased volatility.
Lower Participation - Smaller trading volumes can sometimes suppress market gains, as fewer investors are actively buying, and market moves may be more influenced by short-term traders or algorithmic activity.
- Market Psychology, Sentiment and Year-end Planning:
Investor Optimism at Year-End - Positive sentiment around the holidays and new year often encourages buying. Often at year end and new year beginning retirement savings accounts see increased contributions leading to additional investments.
Holiday Effect - The holiday season (Thanksgiving to New Year) can boost markets due to increased consumer spending and optimism.
End-of-Year Rally ("Santa Claus Rally") - Historically, markets tend to rise in the last week of December through the first two trading days of January, contributing to potential higher gains during the November-April period.
While these patterns have held in the past, they do may not repeat or have the same impact on the market, especially as markets evolve and global economic dynamics shift. While seasonal occurrences may occasionally align with market trends, they are not reliable predictors of future performance. The strong May 2025 market performance underscores the importance of a disciplined, fundamental-driven approach rather than reactive seasonal moves. Clearly the "Sell in May" decision was a costly one this year (and last). I say a lot, "We have heard it before, now it's time to listen". In that spirit, investors should focus on diversified, long-term strategies aligned with their financial goals, rather than relying on adages hopefully have special predictive power.
John J. Gardner, CFP®, CPM®
Blackhawk Wealth Advisors
3860 Blackhawk Rd, Ste. 160
Danville, Ca. 94506
888.985.PLAN (7526)
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