Click to enlarge:

>

However, the chart below shows just how fickle these seasonality charts can be. Looking at the seasonal return for stocks during election years shows a vastly different picture.

>

>

While investors are not likely to make investing decisions based solely on a catchphrase such as, “Sell in May and go away,” the charts above illustrate the degree to which seasonal data can be manipulated to fit one’s bias. For this reason, we have always viewed seasonal charts as interesting eye candy and nothing more.

Source: Bianco Research

 

Comment: As the chart above shows, May typically ends a seasonally strong period for stocks.

 

US Funds Sell In May And Go Away?

Not This Year One catchy investing maxim that’s popular this time of year is “sell in May and go away,” the notion that investors should cash in their investments and take the summer off. Historically, this hasn’t been a bad strategy…Last year, investors who employed the “sell in May” strategy averted an almost 17 percent drop in the S&P 500 and a nearly 25 percent drop in the MSCI Emerging Markets Index from June-September. Summer of 2010 was a similar experience…May has historically been a strong one for markets. Since 1988, the median return for the S&P 500 and MSCI Emerging Markets during May has been 1.22 percent and 1.28 percent, respectively. In fact, May returns rank in the top half for both indices. This is also a presidential election year in the U.S., which has historically produced positive returns. Since 1972, the stock market has rallied in 5 of the 8 election years, according to J.P. Morgan, with market gains of 12-26 percent. Only during recession years (2000 and 2008) did the S&P 500 provide negative returns.

Category: Investing, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

15 Responses to “Sell In May And Go Away…Except In Election Years”

  1. cognos says:

    Wow.

  2. HEHEHE says:

    2008 was an election year

  3. Dima says:

    Wow – rallied in 5 out of 8 election years. Hmmmmm, 5/8 = 62.5%. What was the third down year? Barry am I correct in my thinking that I am seeing a cognitive bias in the writing in this article?

  4. mad97123 says:

    It strikes me that all election years are not created equal. In the past there were many more “bullets” in the Governments guns to fire. This year we face the “fical cliff” instead of a re-load gun. So the question is, “do you feel luck?”.

  5. dead hobo says:

    cognos Says:
    May 2nd, 2012 at 1:03 pm

    Wow.

    reply:
    ————-
    +1

    In the next life, I think I want to grow up and be a stock luminary. It doesn’t look hard and it probably pays well. I’m glad economics, liquidity, and education have nothing to do with it. Otherwise, it might be harder to make a buck. Thank god for rubes.

  6. Frilton Miedman says:

    Outstanding observation.

    Here’s another – The common belief that 10%/yr per year is a reasonable expectation for stocks is based on post 1980 market performance.

    If you go back to the inception of the Dow in 1896 @ 40.94 , the actual mean annual gain is closer to 5%, the market goes into prolonged periods where it soars well above that mean, then goes into prolonged periods where it under-performs, but over decades it always reverts to that 5%.

    In 1980, that 5% mean would be @ Dow 2,466 and the Dow was @ 1,000, it had under-performed for almost 2 decades, from there it outperformed by better than 10%/year.

    By 2007, that 5% mean would have the Dow @ 9,207.

    This year, that mean would be 11,751.

    Nothing written in stone, just an observation.

  7. Disinfectant says:

    Frilton Miedman, you are ignoring dividends, which means all your data is junk. But I do agree that no one is entitled to 10% per year just because they buy stocks.

  8. AlaskanPete says:

    Geez. You have one chart starting in 1981, the other 1926…no wonder you think they’re useless, maybe try some relevant comparisons.

  9. Frilton Miedman says:

    Dis, not junk, I never said it included dividends, it’s a pure valuation observation of market level V mean average , with or without dividends is irrelevant to the point.

  10. anvILL says:

    AlaskanPete, here are some better charts.
    I found it very interesting that the summer is horrible for mid-term election years.

    http://charts.equityclock.com/sp-500-index-four-year-election-cycle-seasonal-charts

  11. bonzo says:

    Frilton: there was no systematic inflation bias prior to the mid 1930′s. The inflation of the WWI era was offset by deflation after WWI and then again in 1929-1933. The old story of nominal versus real. And you can’t neglect dividends, because changes in payout policies staring around 1980 affect stock prices. Nowadays corporations tend to engage in more net buybacks in lieu of dividends, and that has biased stock prices up, without affecting the total return to the shareholder. Dividends is most definitely relevant. Basically, you don’t know what you are talking about.

  12. [...] Sell in May. Not in election years. [...]

  13. Frilton Miedman says:

    bonzo, it all comes out in the wash over longer time frames, my observation incorporates nothing more than valuation, which would reflect those variables, the stock market is (in theory) the quintessential price discovery “authority”. (Not accounting for the newly introduced influence of HFT and CFMA/futures manipulation)

    Both yield and inflation have fluctuated over the years, they’re range-bound relative to the stock market’s upward skew, barring anomalously lower div yields since the mid 1990′s, which would actually support an argument that the market is over-valued.

    Here are two charts from Robert Shiller –
    110+ years of yield http://www.multpl.com/s-p-500-dividend-yield/
    120+ years of inflation – http://www.multpl.com/inflation/

  14. lo574 says:

    I felt the picture given by http://blog.stocktradersalmanac.com/post/Beware-DJIA-SPX-Election-Year-Summer-Rally-Chatter gave a much clearer picture by not only going back to 1904, but then in an secondary effort, gave data post WWII only [after which industrial production and technological advances] forever changed the strength during Summer months. Using post WWII only, the view [and gains] changes dramatically……………..