Debunking the 'sell in May' myth: why historical data tells a different story

What is the 'sell in May' phenomenon

The 'sell in May and go away' phenomenon, recognised in Hong Kong markets as 五窮六絕七翻身, suggests that equity markets experience systematic weakness during May and June before staging a recovery in July. The Western interpretation extends this seasonal avoidance strategy throughout the entire summer period until September. This widely referenced axiom has influenced trading decisions across global markets for several decades.

Historically, many traders have systematically reduced their equity exposure during these months, operating under the premise that autumn and winter periods in the Northern Hemisphere provide superior risk-adjusted returns. This seasonal pattern has become so deeply embedded in market psychology that it is frequently treated as conventional wisdom.

Why does this seasonal pattern supposedly exist

Several factors have been cited to explain the supposed seasonal market weakness. Traditional Northern Hemisphere summer vacation schedules have historically resulted in reduced institutional trading activity, potentially creating lower trading volumes and heightened price volatility due to diminished market liquidity and support mechanisms. Corporate earnings reporting seasons typically occur outside these months, potentially reducing the frequency of market-moving catalysts and fundamental drivers.

Psychological factors play a role too. If enough traders believe in the pattern and act accordingly, it may manifest as a self-fulfilling prophecy through concentrated selling pressure during May.

What does historical data reveal

Comprehensive analysis of Hang Seng Index performance data spanning 2005 to 2024 fundamentally challenges the 'sell in May' narrative. Whilst May historically generates positive returns in only 35% of observed periods for the Hong Kong equity market, delivering an average monthly return of -1.4%, it does not represent the weakest performing month. August demonstrates inferior average performance characteristics, recording merely 35% positive return frequency alongside a -1.8% average monthly return. May exhibits a high/low ratio of 1.09 with average trading volumes of 38.3 billion, indicating robust market volatility and participation levels consistent with other calendar months.

June performance data reveals that Hong Kong equity markets have delivered positive monthly returns in 60% of observed periods over the past two decades, positioning June as the fourth most reliable month throughout the calendar year.

Table 1: Hang Seng Index monthly returns between January 2005 and December 2024

The seasonal hypothesis loses substantial credibility when examining S&P 500 performance metrics, as average trading volume figures during May and June exceed full-year averages. Significantly, May delivers positive returns 75% of the time for US equity markets, ranking amongst the superior performing months. June demonstrates comparable reliability for S&P 500 investors, exhibiting a 60% probability of generating positive returns.

The 2024 trading year provided additional empirical evidence contradicting the 'sell in May' phenomenon. Both major indices sustained their upward trajectories throughout traditionally weak summer months, defying established seasonal expectations. Market breadth remained healthy during this period, characterised by broad-based sector participation rather than the narrow trading ranges typically associated with reduced summer volumes. Performance figures for 2025 present similar patterns, with the Hang Seng Index advancing 5.2% month-to-date whilst the S&P 500 has generated exceptional returns of 6.3%.

Idiosyncratic corporate developments, global macroeconomic factors, and central bank monetary policies have demonstrated significantly greater influence on market performance than seasonal trading patterns.

Table 2: S&P 500 Index monthly returns between January 2005 and December 2024

Chart 1: Hang Seng Index trading activities and range between 2005 and 2024

Chart 2: S&P 500 Index trading activities and range between 2005 and 2024

Why traders shouldn't stop trading based on market folklore

Successful trading execution require evidence-based decision-making frameworks rather than adherence to outdated market folklore. Historical performance data clearly demonstrates that May and June present legitimate trading opportunities characterised by volumes and volatility metrics comparable to other months.

Effective trading strategies should focus on market fundamentals, technical analysis, and risk management rather than calendar-based assumptions. Systematically avoiding potentially profitable months based on unsubstantiated market mythology could materially impact annual returns and overall trading performance metrics.

Contemporary financial markets operate within an interconnected global framework where seasonal patterns from previous decades may no longer be relevant. Algorithmic trading systems, continuous information flow, and international market participation have established more consistent year-round trading opportunities.

Rather than avoiding markets during specific months, traders should maintain disciplined approaches to risk management and position sizing. This strategy ensures optimal capitalisation of trading opportunities whenever they arise, regardless of seasonality.