The age-old saying “Sell in May and go away” has been a popular strategy on Wall Street for years, advising investors to sell their stocks in May and return to the market in November. However, according to a recent analysis by The Wall Street Journal, this strategy may not be as effective as it once was.
The team at The Wall Street Journal looked at data on various stock classes dating back to the 1950s, including U.S. growth stocks, U.S. value stocks, large and small-cap U.S. stocks, and international stocks. They compared average returns and volatility for the May-through-October period versus the rest of the year.
Historically, the advice to sell in May has shown to be true, especially in the 20th century. For example, investors holding large-cap stocks outside of the May-to-October period between 1950 and the end of the century saw an annualized return of 19.62 percent, compared to 6.72 percent for those holding stocks during the May-to-October period.
However, the analysis also showed that returns in the 21st century have been somewhat lower. Investors holding large-cap stocks from January to April and November to December earned an annualized return of 13.29 percent, while those holding stocks during the May-to-October period saw a return of 8.64 percent.
Additionally, the average volatility has increased over the years, indicating a more unpredictable market environment.
Fred Hubler, CEO and Chief Wealth Strategist at Creative Capital Wealth Management Group, noted that the stock market is a complex system with patterns that may work until they don’t. In the current economic cycle, building up cash reserves may be a wise strategy to weather any future market storms.
For those looking for financial guidance, Creative Capital Wealth Management Group offers a Second Opinion Service (SOS) for a personalized review with one of their Wealth Strategists.
In conclusion, while the “Sell in May and go away” strategy has shown historical validity, the current market environment may require a more dynamic approach to investing. Creative Capital Wealth Management Group’s insights and services can help investors navigate the ever-changing landscape of the stock market.