BofA Challenges the “Sell in May” Strategy
Strategists at Bank of America are questioning the long-standing Wall Street saying “sell in May and go away,” suggesting that investors who cut equity exposure this month may be misinterpreting historical trends.
S&P 500 Seasonality Data Explained
Looking at S&P 500 performance data dating back to 1928, analysts Paul Ciana and Jonathan Hartley found that the May-to-October period has historically been the weakest six-month stretch. On average, it delivers returns of 2.4%, compared to 5.2% during the stronger November-to-April period.
However, the strategists emphasize that this underperformance is not evenly distributed across the months.
Weakness Concentrated in Late Summer
According to the analysis, most of the seasonal weakness occurs between August and October. This has led analysts to suggest that a more accurate strategy could be “sell in August and buy around Halloween,” rather than exiting positions at the start of May.
Stronger Performance in Early Summer
A deeper breakdown reveals that June through August is actually one of the stronger three-month periods of the year, with average returns of 3.3%. In contrast, the August-to-October period is the weakest, delivering nearly flat returns of -0.02%.
This pattern suggests that investors may benefit more from staying invested through early summer and potentially reducing exposure later, rather than selling in May.
Nasdaq 100 and Russell 2000 Trends
For the Nasdaq 100, May has historically been a positive month, with average gains of 2.19% and an upward move roughly 68% of the time.
Similarly, the Russell 2000 has shown supportive trends, rising 64% of the time with average gains of 1.33%. Both indices recorded gains in May 2018, during the second year of Donald Trump’s first presidential term.
Impact of the Presidential Cycle
When focusing specifically on the second year of U.S. presidential cycles, equity performance has historically been more subdued. The Nasdaq 100 has averaged gains of just 0.53%, rising only half the time, while the Russell 2000 has declined 64% of the time with an average loss of 1%.
U.S. Dollar Seasonality in May
The strategists also noted that May tends to be a supportive month for the U.S. dollar. Historically, the greenback has shown consistent strength against currencies such as the British pound, Brazilian real, Chilean peso, South African rand, and Indian rupee.
This seasonal trend has also been observed during the second year of presidential cycles and was evident in May 2018.
