The S&P 500 Index closed at its highest level since March 16 yesterday and is now up 1.85% for the year. But, what’s the significance? Well, since 1970, when the S&P 500 has closed higher year-to-date (on any day) during the month of May, the index’s total return for the full year has been positive in every instance except one. That means 35 out of 36 previous years have lead to a higher full-year return. (The year 1990 being the only exception.)
What about the “Sell in May” period? As we discussed in this week’s Weekly Market Commentary, the next six months are historically the weakest of the year, but we think this year might buck that trend and provide opportunity, as it has in five of the past six years. Well, here’s one more reason why, going back to 1950,* when the S&P 500 has a single positive year to date day during the month of May we found that those worst six months of the year return +3.8% on average and are higher 72.5% of the time, both well above the average May through October period. Good news indeed.
“The illusion to the whole ‘sell in May’ meme is that the next six months are always weak. However, that simply isn’t true; and what matters more is if markets are strong heading into these six months, returns can actually be quite strong,” explained Ryan Detrick, Senior Market Strategist.
Lastly, here is one final look at “Sell in May.” As our LPL Chart of the Day shows, when the S&P 500 was up the previous six months heading into the worst six months of the year, is above its 200-day moving average, and it is a midterm year, the returns have been quite strong. In fact, historically the average pullback during the next six months under those criteria is 10.3%, but the average gain when all is said and done is +5.5%. Given 2018 fits all of those criteria, this is another reason to think investors could be rewarded for not selling in May, or even adding on any weakness.
IMPORTANT DISCLOSURES
*Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.
The 200-day moving average (MA) is a popular technical indicator which investors use to analyze price trends. It is the security or index’s average closing price over the last 200 days.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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Index data obtained via FactSet
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