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(Bloomberg) -- An age-old market maxim looms over the bounce in US stocks: Sell in May and go away.
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One of the best-known market trends, the “sell in May” effect is backed by decades of historical performance: Investing in a fund that debuted in 1993 and tracks the S&P 500 during the May-October period yielded a cumulative return of 171%, compared to a 731% gain for November-April, an analysis from Bespoke Investment Group found. The pattern last held from November 2023 to October 2024.
Seasonality is among a multitude of factors investors are crunching to get a read on how stocks might behave in coming weeks, even as their faith in many once-reliable indicators has been shaken by the unpredictability of President Donald Trump’s tariff policies. Taken alone, the old adage would argue against hopping on a searing rebound that has seen the S&P 500 recover 12% from its lows of the month. The index is still down 5.5% year-to-date.
“The scales are tipped in favor of the ‘May-Sellers’ this year,” said Tyler Richey, co-editor at Sevens Report Research, adding that the risks are skewed toward the S&P 500 suffering another big decline next month.
Meanwhile, a longer-term view illustrates the “sell in May” concept even more starkly: Investing in the S&P 500 in the May-October span over the last 74 years has garnered a cumulative return of just 35%, compared with an 11,657% gain during the other half of the year, an analysis from the Stock Trader’s Almanac showed.
The bounce in stocks will run a gauntlet of earnings reports and market data this week, culminating in Friday’s US employment report.
Some indicators have been flashing buy signs, including a plunge in investor sentiment earlier this month and the S&P 500’s close above the 5,500 level. That marks a 50% retracement of the index’s peak-to-trough decline, which some chart-watchers say indicates that investors are back to buying the dip.
Tough start
Seasonality paints a more cautious picture. While the pattern isn’t written in stone, the comparatively poor May-October performance of the S&P 500 has been more pronounced during years when stocks got off to a weak start. A fund tracking the S&P 500 averaged a decline of 0.4% in May-October during years when it started with negative returns through April, the Bespoke’s data showed. The fund — SPDR S&P 500 ETF Trust — is down 5.4% this year through Tuesday.