As many know, there is an old saying that goes “Sell in May and Go Away” urging investors to sell their holdings in May and remain out of the market through October. The belief is that the summer months of the year produce lower gains than winter months. However, the truth in this theory has yet to be proven by market technicians.
It is important to remember that corporate earnings, world events and economic data and indicators are typically what drive the direction of the market; not seasonal trends. Stronger corporate and economic data and calmer global environments are what normally yield a better market. When the summer starts off with positive macroeconomic indicators (Consumer Price Index, Consumer Confidence Index etc.) moving higher, as they have so far this year, historically you are more likely to see positive returns in summer months.
History may also disprove this theory as well. The chart above shows that historically it is more likely to have a positive return in summer months than a negative one.
Investors also need to acknowledge the risk associated with this strategy. One of the risks of acting on the “Sell in May” theory that you have to time the market correctly. For the average investor, timing the market rarely proves fruitful. Successful market timing requires not one, but two correction decisions: when to exit the market and the more difficult task of when to get back into the market. Choosing either time incorrectly could adversely impact your portfolio more than if you were to let the market ride and stay invested.
To have a conversation about creating a plan based on your risk tolerance and investing goals, please contact your wealth advisor at 215.721.2112.