- May 2, 2023
-- The old market adage "sell in May and go away" may have a ring to it, but is it actually valid advice? Unsurprisingly, the answer is no. First, rhymes are not a reliable basis for portfolio decisions. And second, while vacation season is approaching, disciplined investing is a year-round event.
While the saying relates to the (antiquated)
notion that the stock market is weaker during the summer, we don't think seasonal portfolio changes are sensible. Nevertheless, as we turn the calendar to May, recent market moves and historical perspective are informative, offering some additional information on the outlook this year.May is not a cause for mayday
This summer could be hot and cold
- The summer brings the shift toward travel and leisure, but the market doesn't pack its bags, as the old phrase suggests. Over the last 40 years, the average return for the stock market from May to August was a respectable 3.2%, hardly a period worth missing. The market was higher in 75% of those summer periods, with the best May through August gains coming in 1987 (+16%), 2009 (+18%) and 2020 (+21%). The worst periods were in 1998 (-14%), 2002 (-14%) and 2010 (-11%)1.
- In the last four decades, the month of May has seen the stock market rise 71% of the time, with an average monthly return of 0.8%. In those years when the stock market rose in May, it went on to log a gain for the full summer 88% of the time, with an average return of 7.4%1.
- The bottom line: Historical market experience doesn't support a "sell in May" or a "go away" strategy. Past summer-period declines were not simply seasonal declines, but instead were often part of larger phases of market weakness, as was the case in 2022. While we don't think the coast is completely clear, we do believe the bulk of the current bear market is behind us.
Sources: 1. Bloomberg, total return of the S&P 500 Index. 2. Bloomberg.
- We have maintained our view that the economy is likely to endure some form of a mild recession this year. Last week's release of the latest U.S. GDP report confirmed that the economy is losing momentum, with GDP slowing to 1.1% in the first quarter, compared with 2.6% in the prior quarter and 3.2% in the quarter before that2.
- Looking under the hood, the news was mixed. Consumers continue to show resiliency, with household spending (the lion's share of the economy) increasing at a healthy 3.7% rate last quarter, a notable acceleration from the previous period and well above the average of 1.7% over the prior four quarters.