May officially marks the beginning of the “Worst Six Months” for the DJIA and S&P. To wit: “Sell in May and go away.” Our “Best Six Months Switching Strategy,” created in 1986, proves that there is merit to this old trader’s tale. A hypothetical $10,000 investment in the DJIA compounded to a gain of $960,943 for November-April in 70 years compared to just $1,656 for May-October. The same hypothetical $10,000 investment in the S&P 500 compounded to $788,997 for November-April in 70 years compared to a gain of just $10,145 for May-October.
May has been a tricky month over the years, a well-deserved reputation following the May 6, 2010 “flash crash”. It used to be part of what we once called the “May/June disaster area.” From 1965 to 1984 the S&P 500 was down during May fifteen out of twenty times. Then from 1985 through 1997 May was the best month, gaining ground every single year (13 straight gains) on the S&P, up 3.3% on average with the DJIA falling once and two NASDAQ losses.
In the years since 1997, May’s performance has been erratic; DJIA up twelve times in the past twenty-three years (four of the years had gains in excess of 4%). NASDAQ suffered five May losses in a row from 1998-2001, down – 11.9% in 2000, followed by thirteen sizable gains in excess of 2.5% and five losses, the worst of which was 8.3% in 2010.
Post-election Year Mays rank near the top, registering average gains on DJIA and S&P 500 of 1.3% and 1.7% respectively. DJIA and S&P 500 have advanced in every post-election year May beginning in 1985. Russell 1000 has been up ten years straight in post-election year Mays.
The first two days of May trade higher frequently and the S&P 500 has been up 21 of the last 31 first trading days of May. A bout of weakness often appears around or on the third, ninth, thirteenth and fourteenth trading days for large cap stocks. Generally, the first half of the month is better than the second half in post-election years since 1950 (pages 40 & 42 STA 2021).