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 $1,068,826 for November-April in 69 years compared to just $1,461 for May-October. The same hypothetical $10,000 investment in the S&P 500 compounded to $823,326 for November-April in 69 years compared to a gain of just $9,537 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 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 eleven times in the past twenty-two years (three 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 twelve sizable gains in excess of 2.5% and five losses, the worst of which was 8.3% in 2010. Election Year Mays rank at or near the bottom, registering net losses on DJIA and S&P 500 (since 1952), and NASDAQ (since 1972).
The first two days of May trade higher frequently and the S&P 500 has been up 21 of the last 30 first trading days. A bout of weakness often appears on the third, fourth and around the fifteenth trading day for large cap stocks. Generally, the first half of the month is better than the second half. On Friday before Mother’s Day the DJIA has gained ground seventeen of the last twenty-five years and on the Monday after the blue-chip average has risen in seventeen of those years.