What started as an old English saying, "Sell in May and go away, and come on back on St. Leger's Day," has become a common investment adage that gets trotted out by the financial media every spring.
The original phrase references how aristocrats, merchants, and bankers escaped to the countryside during the hot London summers. They would return mid-September for the St. Leger's Stakes, a thoroughbred horse race and the last leg of the British Triple Crown. Today, some investors subscribe to this notion that they are better off selling their stocks in May, avoiding the summer volatility and buying back into stocks around Halloween.
As our readers know, data can be sliced and diced in a myriad of ways to make a point. But, it is worth noting that over the past 20 years, the average S&P 500 return has been quite choppy in the May to October time frame. Most of the stock market gains tend to come at the beginning or end of a year (see graph above).
Considering the S&P 500 is near all-time highs and up over 25% from the December 2018 lows, it's entirely reasonable to expect more volatility this summer. Case in point, the VIX index has risen for three straight weeks. So, a short-term pullback in the coming weeks or months is
certainly possible and there are a number of catalysts that could spark a correction:
- A breakdown in trade negotiations with China
- Additional tariffs on European automobiles
- Brexit / structural changes in Europe
- A military confrontation in Iran (or elsewhere)
- Federal debt ceiling fight
- Fed policy changes including a late-year, rate-hike
Of course, as we've discussed many times, market timing simply does not work. Investors with long-term goals should ignore the
cliché
and stick with their fully diversified portfolios and current allocations to equities. Investing success never follows a straight line and a seasonal correction is likely to be just that, a correction.
