Sell (some stocks) in May and go away?
The Dow has had a tough month. But the rest of the market is doing just fine.
It’s the last day of May. So how are investors who followed the old “sell in May and go away” adage doing? Not too great.
Sure, the Dow (which, in case you forgot, is just 30 stocks) is down nearly 4% during the month of May. But the rest of the much broader market is doing fine. The S&P 500 is up slightly this month while the tech-laden Nasdaq has surged more than 6%. (Thanks, Nvidia!)
Stocks have actually done quite well during the months of May through October over the past decade. Since 2012, the S&P 500 has gained an average of 4.6% during those late spring, summer and early fall months, according to data from LPL Financial. Last year’s 6% drop was an anomaly. In fact, the S&P 500 was up from May to October every year between 2016 and 2021.
The notion that investors should try and time the market and sit out the summer months is antiquated. Yes, volume may be a bit lighter but it’s not as if all of Wall Street takes the summer off.
Now there are several reasons to be worried about a possible market pullback in the next few months. More and more retailers are issuing earnings warnings. Advanced Auto Parts is the latest. The Federal Reserve may continue to raise interest rates despite signs that inflation may have peaked. That could slow the economy. And the debt ceiling drama isn’t revolved just yet. Recent history has shown that in this toxic political environment, lawmakers in Washington can still screw things up royally.
But many companies are doing well despite macro concerns…tech stocks in particular. And the job market continues to hum along, with unemployment levels near half-decade lows.
So if you are gong to sell (or buy) stocks anytime in the next few months, do so based on fundamentals and valuations…not what month it is on the calendar.