“Sell in May and go away, come back on St. Leger’s Day” is an old adage that warns against lower stock market returns over the summer months. But does it still resonate in 2024?
Wider macroeconomic factors could play a significant role in shaping the performance of stocks during the summer. With stubborn inflation data continuing to force the Federal Reserve to maintain a hawkish monetary policy, it’s likely that we’ll only begin seeing rate cuts later in the year.
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Despite Wall Street optimism at the beginning of the year for multiple rate cuts in 2024 starting as early as the first quarter, a consumer price index (CPI) rise in March saw headline inflation arriving hotter than expected at 3.5%, outpacing February’s 3.2% increase. Core CPI, which excludes volatile food and energy prices, maintained a 3.8% pace year over year.
So is there any merit to the “sell in May and go away” mantra? Let’s take a look at how this strategy has evolved over time.
Sell in May and Go Away Meaning
The historical trend of selling stocks in May is thought to have originated from English high society during the 18th century. Market activity slowed when bankers and traders left London on their summer holidays.
But what’s St. Leger’s Day? The St. Leger Festival is the oldest of Britain’s five classic horse-racing events, taking place in mid-September each year. The Saturday of the event is known as St. Leger’s Day.
A related strategy is known as the Halloween effect, which is based on the theory that stocks have better returns between Oct. 31 and May 1.
But how valid is selling in May today? After all, modern trading floors rarely take a break, and the evolution of technology means that it’s possible to trade digitally from anywhere in the world. Although a general answer is that “sell in May” may be too simple as a strategy now because of all the market forces at work, its relevance does deserve some discussion.
Sell in May and Go Away Statistics
Despite Wall Street’s more modern outlook today, statistics support weaker trading figures between May and mid-September in a more general sense.
These trends were strong in the 20th century, and IG Markets data show that stocks in the S&P 500 rose 65% of the time between the end of October and the start of May from 1920 to 1970. The rate of growth fell to 58% between May and October over the same period.
The same correlation still exists on a global scale today. According to an eToro analysis, the monthly average return of shares on the world’s 15 largest indexes was 1.2% from November to April over 50 years through 2022. However, that average return fell to just 0.09% from May to October.
In the U.S., the S&P 500’s 50-year average monthly return from November to April stands at 1.05% but falls to just 0.27% from May to October. As for the Nasdaq, the index’s returns sit at 1.44%, on average, in the winter but drop to 0.68% over the summer.
But what does this mean for specific asset classes? Does the “sell in May” mindset resonate beyond the world of equities?
— U.S. stocks.
— Foreign stocks.
— Bonds.
— REITs.
— Gold and silver.
— Bitcoin and cryptocurrencies.
U.S. Stocks
Although the S&P 500’s return over the past 50 years dipped to a monthly average of 0.27% between May and October, down from 1.05% the rest of the year, this is a highly generalized figure that fails to account for the many stocks that outperform benchmarks over the summer months.
For instance, home improvement stocks such as Home Depot Inc. (ticker: HD) delivered growth in four of the past five periods between May 1 and St. Leger’s Day, and even posted a rally of 9.4% during the same period in 2020.
We can also see similar patterns in live-event stocks like Live Nation Entertainment Inc. (LYV), for instance, which saw growth of 22.5% between May 1 and St. Leger’s Day in 2023.
While seasonal stocks illustrate the versatility of U.S. markets, one of the bigger factors that’s likely to influence a “sell in May” decision in 2024 will be inflation data, which will surely impact stock values in the months ahead.
The U.S. presidential election this year could also confound the “sell in May” mindset. Data suggests that re-election years are stronger for stocks, with an average 12.2% gain taking place since 1952. The average rate of return during all election years since 1952 is 7%.
Foreign Stocks
Interestingly, “sell in May and go away” is also a trend that influences foreign stocks. In its measure of 15 major global indexes, eToro found that the U.K.’s FTSE 100 achieved an average monthly return of 1.09% from November to April over the past 50 years as opposed to -0.04% from May to October. Likewise, Italian and French indexes saw 1.08% and 1.54% average monthly returns, respectively, over the winter, giving way to -0.71% and -0.24% during the summer.
This trend also exists in the Southern Hemisphere. Australia’s ASX200 index had a weaker monthly return of 0.89% in the summer months as opposed to 0.06% in winter months.
Bonds
Bonds are heavily influenced by interest rates and monetary policy, more so than seasonal trends.
According to Russell Investments data, the correlation between equities and bonds broke down in late 1997, from bonds carrying a largely positive correlation with equities to a largely negative correlation.
Since then, the 21st century has rarely seen any meaningful reversal in this negative correlation, meaning that this particular asset class may not have as much of a tendency to slow down in the summer months.
For 2024, bonds will lean heavily on CPI data and the Fed’s monetary policy, meaning their performance will respond to the likelihood of rate cuts instead.
REITs
According to a London School of Economics study, warmer months typically facilitate a housing boom in the U.S. and the U.K., with markets slowing down during the colder winter months. This indicates that “selling in May” could be an effective strategy.
While we can see a general summer trend of outperformance among REITs based on real estate price increases, the Dow Jones Equity All REIT Index shows that these trends are vulnerable to modern macroeconomic factors.
Given the impact of higher-for-longer interest rates on mortgage costs, any summer price rally will depend on the Fed’s reversion to a dovish monetary policy.
Gold and Silver
The S&P GSCI Gold Index shows that gold has delivered growth between May and St. Leger’s Day twice in the past five years, but has failed to secure any growth in the past three periods.
For 2024, gold could fall into the “sell in May” category, with selling pressure pushing the metal below $2,400 an ounce in the short term.
Available data for the past 10 years for silver with the S&P GSCI Silver Index shows a similar pattern. Since 2014, silver only posted growth between May and St. Leger’s Day in 2019 and 2020 since 2014, with the latter being heavily conditioned by the pandemic.
Bitcoin and Cryptocurrencies
CoinMarketCap data suggests that Bitcoin has experienced growth between May and St. Leger’s Day in eight of the past 13 years. However, this growth occurred on a different cycle entirely.
Bitcoin’s halving events, which occur approximately every four years, halve the BTC distributed to miners who mint the cryptocurrency using significant computational power. This directly impacts the scarcity of the coin, usually resulting in rallies between 12 and 18 months after each halving event. Periods between these events are known as “crypto winter,” however, and can show equally flat growth in the summer and winter months.
But Bitcoin trading volumes also show weakening trends between May and September, before picking up ahead of winter, suggesting that seasonality can influence crypto. For instance, crypto’s monthly exchange volume fluctuated between $300 billion and $500 billion between May and September 2023, before jumping to more than $1 trillion in December 2023.
Should I Sell in May 2024?
While there’s certainly a historical case to be made for selling in May and returning later in the year, it’s more likely that the Fed will be the trendsetter on Wall Street in 2024. CPI data will have a lasting impact on markets over the summer months.
Should you sell in May and go away? Inflation holds the key to a more definitive answer, but in general long-term investors should stick to a buy-and-hold strategy that does not shift with the temporary gyrations of the market. There’s plenty of evidence to suggest that trying to time the market is a losing game over the long haul.
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Sell in May and Go Away in 2024? originally appeared on usnews.com
