Why You Shouldn’t Sell Stocks in May—Even If You Go Away

There are many reasons to buy or sell stocks. The calendar is not one of them.

Yet here we are on the last day of April and you are bound to hear people telling you it’s time to sell in May and go away. Until October no less! Who takes a six-month vacation on Wall Street? But I digress. The question remains though: Should investors actually unload stocks because of seasonal factors?

No.

You can analyze corporate profits, valuations, the economic outlook and what’s happening with interest rates to inform your portfolio decisions, for example. But the calendar should NOT determine whether you want to be fully invested or not.

Sure, market returns may be a bit lower over the late spring, summer and early fall months. According to Dow Jones Market Data, the S&P 500 is up 4% on average during May through October over both the past five and 10-year periods. That compares to a 6% increase for the blue chip index in November through April during the past five years and 5.5% average gain during the last 10 years.

So even though stocks haven’t done as well from May through October, they still tend to go up, proving that staying fully invested instead of trying to time the market is a more sensible strategy.

“Should you sell this May? You should not, and you never should unless you are reliably able to predict the future,” said Alex McGrath, chief investment officer for NorthEnd Private Wealth, in a report. “That isn’t to say you should take a hard look at your portfolio and make some allocation decisions based on the data that is in front of you, but blowing out of your portfolio before the summer starts is not a recipe for success.”

What’s more, it’s worth noting that this is a presidential election year. Stocks tend to perform slightly better during the months leading up to an election then they do in nonelection years.

Dow Jones Market Data shows that the S&P 500 has gone up 4.2% on average during May through October of presidential election years going back to 1928. That compares to a 2.1% average gain for all May-October periods during the same time frame.

It makes sense. The incumbent party wants to stay in power. That often means that the president and Congress will pull what financial levers they can, be it with stimulus spending or tax breaks, to try to support the stock market and economy to impress voters.

But there is an added wrinkle this year to consider if you are actually looking to metaphorically get on the Hamptons jitney a little early and check out for the summer. April has been a lousy month for stocks.

The S&P 500 was down 2.6% through April 29 and was off nearly another 1% late Tuesday morning. That might change the investing calculus for the rest of the year a little bit, according to data compiled by Ryan Detrick, chief market strategist at Carson Group. When the S&P is in the red in April, dating back to 1950, then the next six months were negative for the market nearly half of the time, the data show. And the average drop was about 3%. So maybe the phrase should be changed to “Sell in April and run for the hills.”

Then again, Detrick also pointed out that the broader market is still sitting on solid gains for the full year, despite a weak April. The S&P 500 is currently up about 7%. And Detrick noted that in years where the index has gained over 4% during the first four months of the year, the S&P 500 went on to gain 4.2%, on average, during May through October.

In other words, Detrick said there is “something for everyone” this year. Bears can argue why selling in May and going away is the right move after a down April, while bulls can note that staying invested for the long haul is a smarter strategy. The bottom line? Investors should probably take heed of another old saying: “Time in the market is better than timing the market.”