The stock market adage “sell in May and go away” is a very tired cliché. But the past fifteen years show that stock market returns are far worse from May through the end of October, than they are during the rest of the year. So as May starts, history suggests that (based on market performance as a whole) you might be smart to sell your shares now, and not bother with markets again until November.
The full (British) expression, “Sell in May and go away, don’t come back till St. Leger day,” refers to the last horse race on the English racing calendar, which is usually held in mid-September. Traditionally, brokers would either take the summer off, or be too distracted by the races to do much work, so markets would be quiet.
Even over the past 15 years, stock markets have performed far better between November of one year and April of the next, than between May and October.
One explanation for this suggests that, similar to horse-racing England, in the late spring and summer some investors and traders are on holiday, so markets tend to drift. And after the summer, they’re back on the trading floor, so there’s more going on. In the world of high-frequency trading and 24/7 markets, though, this explanation doesn’t make much sense.
Whatever the reason, MSCI Asia ex-Japan Index, Singapore’s STI, the Hang Seng, Malaysia’s KLCI, the Shanghai Composite and the S&P 500 (as well as the MSCI World) all perform significantly better from November 1 to April 30, than from May 1 to October 31.
For example, the MSCI Asia ex-Japan posted a negative return of 1.7 percent, on average, during the May-November period in 2001-2015, and a 9.0 percent return from November through April. Since 2001, on average the STI has fallen 1.9 percent from May through October, and appreciated by 6.7 percent during the period from November to April.
The biggest difference in performance for the two periods was for the Shanghai Composite, where shares fell by 6.3 percent on average from May through the end of October, but rose by 10.4 percent during the other period.
Only in two markets – Hong Kong and Malaysia – did it make sense to hold on to shares through the whole year.
The effectiveness of these types of strategies usually declines as more investors apply them. But still, “sell in May and go away” remains a very effective trading strategy.
Of course, what holds for an index as a whole won’t hold up for any specific stocks separately. So the strategy would work best with an index ETF or fund. And the transaction costs of trying to time the market like this would add up, and – depending on your nationality and the markets you’re trading – you could also face tax consequences for buying and selling your portfolio (or part of it) twice a year.
But if you’re inclined to take some time off from the stock market, now until the end of October would be a good time to do it.