Sell in May and Go Away: A Stock Market Strategy with Historical Ups and Downs

As May unfolds, investors are reminded of the age-old adage in the financial world: "Sell in May and go away." This strategy suggests that investors sell their stock holdings in May and reinvest in the market around November, bypassing the traditionally lackluster summer months. While it may sound like a simple rule, its historical performance has been mixed, with both upsides and downsides.

The Upside: Historical Success Stories

Historically, the "Sell in May" strategy has often been associated with avoiding market downturns during the summer months. One notable example is the 2008 financial crisis. Had investors followed this strategy, they could have avoided significant losses during the turbulent months of June, July and August, as stock markets experienced sharp declines.

Similarly, during the dot-com bubble burst in 2000, selling in May could have helped investors sidestep substantial losses, as the market continued to decline through the summer.

In 2020, amid the COVID-19 pandemic, the strategy could have proven beneficial as well. Uncertainty and volatility in global markets reigned in the months following May, making it a challenging period for investors who remained fully invested.

Another example is the global financial crisis of 2008. After May, stock markets experienced significant declines. Had investors sold in May, they could have avoided some of the losses incurred during the subsequent months.

The Downside: Missed Opportunities

While there have been instances where "Sell in May" proved prescient, there have also been many occasions when the advice would have led to missed opportunities.

One such instance is the strong market performance during the summer months. In 2019, for example, selling in May would have meant missing out on significant gains as the S&P 500 rallied over the summer, posting a gain of more than 6% from May to September.

Additionally, there have been years where the market did not follow the expected pattern. In 2013, the S&P 500 posted gains every month from May to September, confounding those who adhered strictly to the "Sell in May" strategy.

Furthermore, timing the market can be notoriously difficult. Selling in May and attempting to buy back in later exposes investors to the risk of missing out on potential gains if the market unexpectedly rallies during the summer months.

Other Instances of Success and Failure

Throughout history, there have been numerous instances where the "Sell in May" strategy has either worked or failed:

In 1987, for example, the strategy would have been beneficial as it would have helped investors avoid the infamous Black Monday crash in October.

In 2011, following May, the stock market experienced a significant decline due to concerns over the European debt crisis. However, this was followed by a strong rally, demonstrating the unpredictability of market movements.

And, in 2017, the S&P 500 experienced positive returns every month from May to September, making it a missed opportunity for those who sold in May.

The Bottom Line

The "Sell in May and go away" strategy has its proponents and detractors. While it has avoided downturns in certain years, it has also caused investors to miss out on gains during strong summer markets. Additionally, timing the market is notoriously challenging, and those who attempt to do so risk missing out on potential upside.

As always, investors should consider their own risk tolerance, investment goals, and the broader economic and market conditions before making any significant changes to their investment strategy. While historical patterns can provide insights, they do not guarantee future performance.

Any opinions are those of Southern Springs Capital Group and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

As Financial Advisors of Raymond James, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Southern Springs Capital Group is not a registered broker/dealer and is independent of Raymond James Financial Services.

David Jackson, MBA, CFP®, C(K)P™, is the Managing Partner at the Southern Springs Capital Group. For more information on Southern Springs Capital Group, visit www.southernspringscapital.com. Our offices are located at 2555 Meridian Boulevard in Franklin. We can be reached at 615-905-4585.