Sell in May?

While I’m lying on the beach (and I go in the Atlantic every year this weekend), here’s a very interesting look at the old axiom, "Sell in May and then go away." 

Does it have any scientific basis? My South African friend Prieur du Plessis of Plexus Asset Management notes that the long-term statistics support the notion that the best time to be invested in equities is the six months from early November through to the end of April, while the “bad” periods normally occur over the six months from May to October. Surprisingly, this is true globally also:

"A study of the MSCI World Index, a commonly used benchmark for global equity markets, reveals that since 1969 "good" periods returned 8.4% per annum while investors were actually in the red during the "bad" periods by -0.4% per annum. Interestingly, this phenomenon – of "good" period returns outperforming those of "bad" periods – applied to all 18 markets where MSCI computed index returns.

“Sell in May and go away” also holds true for the US stock markets. A study by Plexus Asset Management of the S&P500 Index shows that the returns of the “good” six-month periods from January 1950 to December 2006 were 8,5% per annum whereas those of the “bad” periods were 3,2% per annum.

A study of the pattern in monthly returns reveals that the “bad” periods of the S&P500 Index are quite distinct with every single one of the six months from May to October having lower average monthly returns than the six months of the good periods."

A review of the basic monthly returns since 1950 show the weaker periods:

Monthly_spx
chart courtesy of Plexus Asset Management

>
The summer months are particularly slow; also impacting returns: the crashworthy tendencies of September and October.

Category: Investing, Markets, Technical Analysis

National Gasoline Prices

Category: Commodities, Consumer Spending, Film, Psychology

Another Look at New Home Sales

Category: Data Analysis, Economy, Psychology, Real Estate

Media Appearance: Kudlow & Company (5/24/07)

Category: Media

New Home Sales Up (but beware double digit monthly gains)

Category: Data Analysis, Economy, Real Estate

WSJ: Overstated Job Market Strength?

Category: Data Analysis, Economy, Employment

Larry Sanders Show

Category: Digital Media, Television

Category: Investing, Markets, Psychology

Relative Short Interest/Total Market Float

Category: Apprenticed Investor, Investing, Markets, Psychology, Short Selling, Technical Analysis

Category: Markets, Psychology, Trading