analysis
One of the most common stock market sayings is: “Sell in May and go away”. But does it really make sense to sell stocks in May and return to the stock markets later?
A stock market year is divided into two parts: On average, the stock markets perform better from October to spring than from May to September. The statistics prove this. This results in one of the most frequently quoted stock market wisdom: “Sell in May and go away” – sell your shares and turn your back on the stock market for now.
But no rule without exception. The developments of the past year show that in 2023 it would have been better to “Sell in Summer” instead of selling your shares in May.
Two years ago, in 2022, the wisdom made perfect sense: from the end of May, the prices crumbled – until September 30th. But the stock market year 2022 was a special one – with central banks raising interest rates to combat high inflation and with many uncertainties caused by Russia’s war against Ukraine.
No two years are the same
These examples alone show that no two years are the same, the conditions change. “Sell in May” is a stock market adage that “by no means has to be true every year,” confirms Ascan Iredi, head of portfolio management at Plutos Vermögensverwaltung AG tagesschau24.
Nevertheless, there is a seasonality that also distinguishes individual months, weeks and even days. After that, April is not a very good month and summer is sometimes a “dry spell”.
“Come back in September”?
The continuation of the stock market wisdom “Sell in May” is “Remember to come back in September”. According to this wisdom, things will not start to improve again on the stock markets until autumn. Iredi nevertheless emphasizes: “Basically, the data should be viewed with caution; it is a series of numbers over many years that does not apply every year.”
According to Iredi’s assessment, the seasonal trend in 2024 on the German stock market is “very typical”. This suggests that May is actually “a sales opportunity”.
Deutsche Bank takes a close look at the index
An analysis by Deutsche Bank of the European stock market shows: Over a long period of time, “Sell in May” was a solid decision. The bank took a closer look at the STOXX Europe 600, the index of the 600 largest European companies.
Result: From 1987 to now, investors with the “Sell in May” strategy achieved an average price performance of 9.1 percent extrapolated to one year. On the other hand, if they had held their shares over the summer, the change would have been smaller, with an increase of 7.4 percent.
Three years save the “Sell-in-May” balance sheet
However: This result only came about due to special effects. The trend was particularly reinforced by the major slumps on the stock markets in 1998, 2001 and 2008. They each occurred between spring and autumn. These slumps improved the “Sell-in-May” balance sheet.
If these extraordinary market events had not occurred, Sell in May investors would have underperformed in 23 out of 37 years. The analysis shows this too.
US stock market refutes wisdom
A long-term look at US stocks in the S&P 500 also shows that investors may not be so well advised to follow the motto “Sell in May”:
There, for a good 50 years, sales in the spring have paid off less well. Since 1973, sellers in May have on average made less price gain (9.4 percent per year) than those who held out (10.1 percent).
“You can also flip a coin”
Analysts at Deutsche Bank conclude: “One could argue that the Sell in May strategy is essentially as promising as flipping a coin.”
In other words: stock market wisdom – similar to farmers’ rules – can certainly have a kernel of truth. But sometimes they cause confusion – or they are even contradictory. And: Since you can trade stocks anytime, anywhere and cheaply, seasonal effects are becoming less and less important anyway.