This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
‘Sell in May, and go away, and don’t come back until St Ledger’s Day.’
The traditional stock market adage suggests that markets struggle for direction over the summer months. This held true perhaps in a more genteel age, when the City and Wall Street decamped to the races and their country houses. Now, activity goes on all year. Is it still a good idea for investors to avoid the summer months?
Research suggests that abandoning the market over the period from May to early September would cause investors to miss out on an average gain of 1.5%. Compounded over the years, this would eat into returns significantly, even before adding in the costs of selling and then buying back holdings.
The data is skewed by some years when performance in the summer was poor. For example 2008, 2010, 2011 and 2015 all saw rocky periods for global markets. But these are the exceptions. Instead, investors risk selling in May and buying back higher in September and October. When dividends are included, the idea looks even less attractive.
Over the past 20 years, August and September have been weaker months for the S&P 500, down 1.2% and 0.8% on average respectively. The strongest months on average are the final three of the year, but March and April are also strong performers. In the past five years, the effect is even weaker, with the market moving higher in Q1, pausing at the beginning of Q2, rallying more into Q3 and then going into overdrive in Q4.
In short, the old adage is probably obsolete. As the market moves further into its secular bull market (defined as beginning in 2013 when it took out the previous record highs), dips will occur along the way. But blindly selling in a given period based on an old aphorism is probably not the best idea.