“Sell in May and Go Away” is a popular Wall Street maxim referring to the belief that returns from October through April tend to be higher than returns from May through September.
• In my analysis using the S&P 500 Total Return Index, I analyzed each set of returns beginning in May of 1947. If we consider all 65 of the timeframes since 1947, the annualized average return for October-April is 15.6% while the annualized average return for May-September is 9.5%.
• Returns during an election year are a different story. The returns for October-April in the year prior to an election are higher than those of May-September of an election year — average returns are 12.6% versus 9.4%. It is noteworthy that the October-April returns of the year prior to an election are lower than the October-April returns in all timeframes, while the May-September returns in an election year are higher than the May-September returns in all timeframes. However, the October-April returns of an election year are much lower than the October-April returns of the year prior to an election (average is 7.7%). This brings them below the returns for May-September of an election year. The chance of a loss greater than 20% is the same at 6% for the October-April before the election and May-September of an election year; but is 13% for October-April of an election year.
• The returns for October-April may be higher in general, but the absolute level of returns from May-September is still good, and slightly higher in an election year.
S&P Total Return Index (Annualized Avg. Returns)
May – September October – April
Election Year: 9.4% 7.7%
All Years: 9.5% 15.6
Source: Ibbotson, FactSet
Should investors reallocate or rotate out of equities in May and go away? Not based on this analysis.
As of April 30th, 2012 here are the returns for the following indices: NASDAQ = 17%, The S&P = 11% and the Dow = 8%.