DON’T ‘SELL IN MAY’?
The old adage to ‘Sell in May and go away’ advises investors to sell their stock holdings in May and then get back into stock markets in November — so as to avoid the traditional seasonal decline in equity markets between May and October.
However, the US institutional broker Strategas believes the old saying may prove wrong this year. Strategas examined the performance of the S&P 500 (a stock market index that includes the 500 largest companies in the US) since 1950.
“Historically the summer months may not be the best time for S&P 500 performance — but it is important to put that into the context of current market conditions,” said Todd Sohn, a technical analyst with Strategas. “When you are in a market uptrend, performance during May to October is usually stronger than history suggests. Based on our data, ignoring the old adage is likely preferable this year.” A market uptrend, according to Strategas, is when the S&P 500 is trading above its 10-month average. Strategas’s figures show that the S&P 500 began this month in an uptrend.
Historically, stock markets have tended to perform more poorly over the summer months because investors are often away on holiday — and markets are quieter. “Historical analysis suggests that selling in May works 90pc of the time across developed markets,” said Peter Brown, one of the founders of Dublin firm Baggot Investment Partners. “However, I don’t believe in selling in May this year. I think markets will be flat this summer. So even though investment returns may not be that high, it would be best to stay put.”
Of course, anything can happen in stock markets and the recent eerie calm on Wall Street has some investors worried that something nasty could be about to happen.
It is time spent in the market — rather than timing the market, which matters most when it comes to investment returns, according to David Hillery, senior investment strategist with Davy.
“As a general rule, investors should stay in the market,” said Hillery. “Analysis shows that an investor who put €1m in the market in 2001 would have around €2m today. However, if you missed the 10 best days in the market since 2001, you would have made a return of about 9pc. If you missed the best 30 days, you would be in negative territory.”