May 2024: Breaking the 'Sell in May and Go Away'
As we usher in May, investors often find themselves facing a familiar adage: "Sell in May and go away." While this saying may carry a hint of folklore, historical trends suggest that the stock market indeed tends to experience a dip from May to October compared to the preceding months.
Since 1928, the November to April period has consistently outperformed the May to October cycle, with the S&P 500 exhibiting an average gain of 5.2% versus a mere 2.1% rise during the latter period. This trend has only solidified since 1950, with the November-start cycle boasting a 7% increase, contrasting with the modest 1.7% rise seen in May-start cycles.
Recent years have seen a slight divergence from this pattern, with the November-April period gaining 5.5% over the last decade compared to a 4% increase in the subsequent months. However, the gap has widened in the past five years, highlighting the ongoing relevance of this historical trend.
As we bid farewell to the November-April period, the S&P 500's impressive 22% gain since the end of October suggests a continuation of this trend. Yet, amidst these historical observations, investors can find solace in the nuances of the presidential cycle, where election years typically see a more favorable performance from May to October.
While acknowledging the importance of historical trends, it's crucial for investors to remain attuned to market dynamics. Despite recent corrections and distribution days, current market conditions hint at a potential rally, challenging the conventional wisdom of "selling in May."
Even during the traditionally weaker months, forgoing the May-October period could mean missing out on potential gains. Moreover, attributing market performance solely to seasonal trends overlooks external factors, as noted by Jessica Rabe of DataTrek Research, citing historical exogenous shocks that have influenced market declines.
Looking ahead, our analysis for May 2024 reflects a market retreat in April, bringing stocks closer to fair value from their stretched positions. Value and small-cap stocks emerge as compelling opportunities for long-term investors, with sectors like real estate, communications, and basic materials presenting attractive valuations.
In summary, while seasonal shifts may influence market sentiment, a nuanced approach that integrates historical trends with current market dynamics is essential for navigating the ever-evolving landscape of investment opportunities.
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