- With stocks struggling to break out of their range, rates climbing, and valuations stretched investors are rightly asking whether it’s time to sell.
Russ Koesterich, CFA, JD, Managing Director and Portfolio Manager of the Global Allocation team explains why “sell in May and go away” may not work this year.
With stocks struggling to break out of their range, rates climbing, and valuations stretched investors are rightly asking whether it’s time to sell. The calendar only adds to these concerns. But while there is some truth to the adage, ‘Sell in May and go away,’ seasonality tends to be less relevant than market momentum, which currently favors stocks.
Although the effects are often exaggerated, seasonality is worth watching. Over the long term, there is ample evidence that returns are impacted by the time of year. For example, the S&P 500’s average monthly price return since its origin in the 1920s between May and September is 0.40%, roughly half the average of the other months.
The seasonal effect has become even stronger in the modern era. Since 1987, monthly returns have averaged approximately 0.20% between the end of April and the end of September. In contrast, other months produce average price returns of 1.10%.
The relationship is also evident outside of the United States. Using the MSCI World Index of developed countries, average monthly price returns were nominally negative between May and September. For the other periods, monthly returns averaged slightly more than 1%.