Sell in May and Go Away?

An issue that is beginning to take some prominence in the media is whether to stay on the sidelines until closer to the end of the year.  Commonly put “Sell in May and go away.”

Let’s take a look at some of the history.

The Numbers!

Historical Numbers

The data represents the compound total returns for the S&P 500 across three time frames.  First, the complete time period from Q4 2000 to Q3 2012; second only Q2 & Q3 from 2001 to 2012; and third only Q4 & Q1 from 2000 to 2012.  There are a total of 48 quarters divided evenly between the two time segments.

One can see the data shows a significant return advantage for the Q4 & Q1 time periods over the Q2 & Q3 time periods.  This advantage largely disappears vs. the return over the total time period.

The underlying data shows that a more pronounced return differential is apparent on an economic sector basis. Suggesting a sector avoidance strategy during the May to September period could be a more useful strategy.

Closely looking at the sector data also reveals a bias to the upside during the Q4-Q1 time period.  In 2001-2012 74% of the sector return observations during Q4-Q1 were positive.  Alternatively, 54% were positive during the Q2-Q3 observations.  As well, several sectors show a large average return difference when the quarterly time period returns are compared.

The old saying “Sell in May and go away” stems from the statistical relationship between the returns during the second and third quarters of the year relative to the fourth and first quarters.  The data shows that on average the strategy  has a slightly positive bias against the full year returns and a significant advantage vs. g cloud . the Q2-Q3 period.

This does not hold true for the underlying economic sectors where it shows some significant differences in the average returns.  Suggesting the opportunity is with an economic sector strategy.

A Closer Look!

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