Study: "Sell in May and go away" when stocks are down YTD


As you probably know, “Sell in May and go away’ states that the stock market is seasonally weak from May – September. We already demonstrated that it isn’t as weak as investors think in this study.

Some investors believe that May-September is not seasonally bearish IF…

  1. The stock market falls from January – April, AND…
  2. There’s no recession that year (a recession in 2018 is highly unlikely).

Are they right? Let’s look at what happens next to the U.S. stock market from May-September when

The S&P falls from January – April…
And the S&P isn’t in a recession that year (a recession in 2018 is highly unlikely)

Here are the historical years.

  1. 2018 (present case)
  2. 2005
  3. 2004
  4. 2002
  5. 2000
  6. 1994
  7. 1992
  8. 1984
  9. 1977
  10. 1966
  11. 1962
  12. 1952

Here’s what happened next

2005

The stock market went up from May-September. It also went up from October – December.

2004

The stock market was flat from May-September. It went up from October – December.

2002

The stock market went down from May-September. It also went down from October – December.

2000

The stock market was flat from May-September. It went down from October – December.

1994

The stock market went up from May-September. It was flat from October – December.

1992

The stock market was flat from May-September. It went up from October – December.

1984

The stock market went up from May-September. It also went up from October – December.

1977

The stock market went down from May-September. It also went down from October – December.

1966

The stock market went down from May-September. It went up from October – December.

1962

The stock market went down from May-September. It went up from October – December.

1952

The stock market went up from May-September. It also went up from October – December.

Conclusion

From May-September:

  1. 4 cases went up
  2. 3 cases were flat
  3. 4 cases where down

From October – December:

  1. 7 cases were up
  2. 1 case was flat
  3. 3 cases were down

As you can see, “sell in May and go away” is neither consistently bearish nor bearish. It’s random. The probability of the stock market going up from May-September = the probability of the market going down from May-September. It doesn’t matter what the S&P was doing from January – April.

2 comments add yours

  1. Its human nature to see patterns where none exist. In our hard-wired brain’s attempt to find reasons behind every chart pattern, we tend to rationalize randomness and even macro-factors (unique to each of those years in your charts) to simple seasonality explanation. Investors suffer if they try to over-simplify a complex eco-system like stock market into simple models.

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