"Sell in May and go away" is a well-worn investor cliché. It suggests that from the May onwards equity performance tends to fall or weaken. If true, it would follow that in a perfect world – ignoring investment parameters and trading costs - an investor should divest their equity holdings in May and sit out stock markets over the summer.
But analysis of the returns of two major markets over a quarter of a century. shows no evidence that Sell in May has consistently generated excess returns.
The chart below shows the Russell 1000 and FTSE 100 Total Return over three months from 1st May every year since 1996. There is no discernible pattern: both delivered a negative return on 14 occasions, and a positive return 11 times. Overall, the strategy would have failed 44% of the time.
More recently unconventional policy measures and the COVID market rebound have made the Sell in May strategy continually detrimental.
Both indexes have now delivered outperformance for the period in question every year since 2016. The last time either the Russell 1000 of FTSE 100 Index delivered a negative return more than one year in a row was 2012.
And last year, Sell in May aficionados would have missed a spectacular spring recovery, particularly in US markets, where the Russell 1000 gained 18.23%,
A similar analysis of the Total Return of the Russell 1000 and FTSE 100 in the three months from 1st November over the same time period suggests that QE and unconventional policy measures bolstered performance, with only seven years returning a negative return for the Russell, and the FTSE 100 delivering a negative return for nine years out of 25.
Furthermore, if we significance test the results to screen out any returns of less than -2%, Sell in May would have produced even fewer opportunities
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