Should investors plan to ‘sell in May’?
6 months beginning next month have bearish record
NEW YORK — Investors looking for a reason to sell and protect profits after watching stocks double since March 2009 and post their best firstquarter gain in 14 years might find one in the Wall Street axiom: “Sell in May and go away.” The sell-in-may mantra is one of the bestknown and most successful seasonal sell signals, made famous by the Stock Trader’s Almanac. History has shown that U.S. stocks fare far better in the six-month period from November through April. In contrast, the six months beginning in May have been less profitable since 1928.
Jason Trennert, founder of Strategas Research Partners, says playing the sell-in-may card is akin to taking a seasonal “flyer” on stocks. While he’s not a fan of investing based on the calendar, and is unsure if its success is due to cash flows related to retirement planning or “some higher, more metaphysical order of the universe,” he says you can’t dismiss the strategy’s success. In a report, “Why Sell in May Might Work Yet Again,” he outlines reasons stocks may struggle in the months ahead.
The Almanac’s “Best Months Switching Strategy” — which gets investors in and out of stocks at the start and end of the key sixmonth periods — shows how profitable it can be to get out of stocks around May. A $10,000 investment during each May-october period since 1950 would be worth $6,724 today, says the Almanac. But $10,000 would have grown to $1.6 million in the NovemberApril period.
Even though April has been the top-performing month for the Dow Jones industrials the past 50 years, Almanac editor Jeffrey Hirsch is already
Unanswered questions on tax policy and deficits will keep investors cautious.
Economic data to slow. With gas prices and unemployment still elevated, growth will suffer this quarter. planning his exit from stocks. “We’re on the brink of a sell signal,” says Hirsch, adding that market indicators he follows point to a coming top.
Trennert offers some other headwinds:
More stimulus not a boon. Even if the Federal Reserve does another round of stimulus, the reaction may be muted as investors have already priced it in.
Slowing profit growth. A recession in Europe and a slowdown in China equals less profit for S&P 500 companies. Estimated profit growth for 2012 is 6%, vs. doubledigit gains last year, S&P Capital IQ says.
Election year “uncertainty.”