Invest in May, depart in May: Could the traditional wisdom hold up in the current year?
**"Skedaddle in May, and don't bother comin' back 'til St. Leger's Day" - an age-old saying that still echoes in the financial realm, reminiscing the Doncaster St. Leger Stakes horse race in mid-September.
In simpler times, movers and shakers on Wall Street would kick back for the summer, leaving a drought in trading activity, and resulting in less-than-impressive returns. But with tech taking over, things have shifted, right?
Well, not entirely. The data shows that the saying still holds some weight.
Since 1965, the UK's FTSE All-Share index has seen a slight drop of approximately 0.2% between May and September. But history has proven that this pattern isn't consistent every year.
Last year, the "Sell in May" rule got a bit of a break, with the FTSE All-Share growing a healthy 1.7% across the summer months, despite volatility in the US and Japanese stock markets.
With increasing trade uncertainty, downside economic risks, and a false sense of security in the market, analysts predict the "Sell in May" rule might make a comeback this year.
However, outside factors such as globalization, algorithmic trading, and the unpredictability of the stock market, particularly the US markets, make this adage challenging to rely on entirely.
The chaos caused by Trump's tariffs and the end to the temporary truce could potentially escalate market volatility during the summer. But hang on, the adage has historically been less effective for US markets.
Deutsche Bank analysts pointed out that following the "Sell in May" strategy in US markets might have yielded an annual return of 9.2% since 1973, while a "Buy and Hold" strategy would have netted a 10% return.
As for Germany's DAX index, senior analyst Jochen Stanzl at CMC Markets noted that the index also shows variations in seasonal patterns, with troughs not always happening until early October.
So, while the "Sell in May" adage has some historical basis, its effectiveness has waned, particularly in the US. It's essential for investors to consider individual stock fundamentals rather than relying on blanket seasonal strategies."
[1] Individual stock fundamentals play a critical role in investment decisions, and should not be neglected over seasonal strategies.[2] Since 1965, the FTSE All-Share index has shown an average decline of 0.2% between May and September. However, since the late 80s, this trend has weakened in the UK market.[3] US markets, such as the S&P 500, have seen significant gains during the May-October period in recent years, making the "Sell in May" rule less effective.[4] The "Sell in May" rule has underperformed in 7 out of the past 10 years in the UK market.[5] Globalization and algorithmic trading have reduced the seasonal liquidity drops that originally drove the pattern in both the UK and US markets.
[1] Despite the age-old saying, it's crucial for investors to scrutinize individual stock fundamentals when making investment decisions, as they are a more reliable indicator than blanket seasonal strategies.
[2] In contrast to earlier years, the FTSE All-Share index's average drop of approximately 0.2% between May and September since 1965 has shown signs of weakening, particularly from the late 80s onwards.
[3] Contrary to the "Sell in May" rule, US markets, such as the S&P 500, have demonstrated significant growth during the May-October period in recent years, making the rule less effective in these markets.
[4] The "Sell in May" rule has underperformed the UK market for 7 out of the past 10 years, suggesting that its effectiveness has waned.
[5] Globalization and algorithmic trading have diminished the seasonal liquidity drops that originally drove the pattern in both the UK and US markets, making seasonal strategies like the "Sell in May" adage less reliable.
