US stock market has experienced one of the best first four-month performance over the last four decades, produced 17.5% price return comparing to 19.1% in 1987. It is the third best price return for S&P 500 index since 1950; the top four-month performance belongs to 27.3% in 1975 as the stock market recovered from a severe bear market in 1973-1974 when the index nosedived more than 42% in two years. With calendar flipped into May and onto summer season of sun, beaches, most likely we would hear a lot of about old Wall Street saying “Say in May and go away” in the media. Moreover, primarily because of the unprecedented nature of speed and magnitude of the current market rally against the backdrop of weakening macroeconomic and corporate earnings backdrops during the period.
30 and re-entering the market on October 30, the investors would enjoy 6.39% compound return for the six months, while investors who would receive only 1.04% return for May-Oct period on average. This 5.35% performance difference between two periods would mean $1 invested in Nov-April 6 month period would grow to $72, while the same dollar would only double to $2 if invested May-Oct 6 month period over last 69 years.
Investors would earn 3.4% incremental returns (10.9%-7.5%) over the 69 years as the average three month T Bill yield was 4.2%, or about 3% higher than Nov-April 6 month period return of 1.04%. Because of the power of compounding, the $1 growth would be $1,239 rather than $147 or 8.4X higher!
Interestingly enough, the S&P 500 index dividend yield over last 69 years was 3.3%, and which means that S&P 500 index total return including dividends was 11.03% compound annually, slightly higher than 10.9%, the return generated using “Sell in May” and investing the proceeds into T-bills strategy. Therefore, if investors had captured all dividends, his or her $1 the beginning of 1950 to the end of 2018 would be $1,367, much superior to the $1,239 of “Sell in May” and roll proceeds into T bill strategy if investors could stomach much higher volatilities along the way.
From moving time horizon perspectives, “Sell in May” phenomenon was much more prevalent and consistent in the two decades of 50s-60s, and worked 8-9 years out of every ten years. Also, from the 1970s up to early 2000s, the frequency dropped to about 7-8 years, and in the latest business cycle since the GFC, “Sell in May” has only worked about 6-7 times over the 10-year rolling period. It dropped to a flipping coin chance of 5 out of 10 during the decade ended 2009.
It certainly may be coincidental that almost every 10 years or so that “Sell in May” would deliver the most significant 6-month performance of Nov-Apr period as it happened in 1967, 1975, 1987 and 1998, and even in 2008, the performance Nov-Apr period was 18.1% over May-Oct period, ranked the 7th largest performance differential. The common thread among these years is pretty evident as 1987 and 1998 marked with “Black Monday” as Dow Jones tanked 23%, and the giant hedge fund, Long-Term Capitals, collapsing forced Fed to step in orchestrating rescue to stabilize financial market respectively. And in 2008, the Great Financial Crisis, triggered the stock market or S&P 500 index cliff-diving and fell 26% in two months, all these dramatic market declines all occurred in Aug, Sept, and Oct. However, even we exclude these individual calendar years or events, relative strong market performance from Nov-April month period persistent with pronounced seasonality, for example, if we assume that the 6-month period performance between Nov-April and May-Oct were the same for all these five specific years, the Nov-Apr period return would drop to 4.4% from 6.4%, still almost 4X higher than May-Oct period. The strength and trend, nevertheless, appear on the declining in the last decade.
The first four months in 2019 also fell into a very special category for the S&P 500 index from a historical perspective as the index churn out 17.5% price return for the period, the performance only happened twice, i.e., 1987 and 1975, when the index produced a better performance since 1950. If we filtered out the years of the first four-month total price return higher than 10%, hope history might provide some rhymes and clues.
As the table indicates, there were 16 out of 69 years that the first four-month price return was in double-digits, and the S&P 500 index also ended the year in higher than 10%, 22.5% on average. Of all 16 years, 19.2%, the average 6-month period performance of Nov-Apr comparing to 2.7% for May-Oct was much higher than the long-term average of this data series (6.4% vs. 1.0%). If we compared the Nov-Apr 6 month period performance to the first four-month returns (table column named “Nov-Dec Period”), there were more additional gains were expected in the final two months within a given calendar year, or more than 4% more returns on14 out of 16 years. The only exceptions were 1986 and 1987 when there were draw downs in the final two months. And also, the calendar year end returns were much higher than the first four-month returns on almost all 16 years except 1987 and 1971.
Bottom line, “Sell in May” phenomenon has been much prevalent in the past, the strong seasonality are still present but the frequencies and magnitude of performance disparity between Nov-Apr and May-Oct appeared to be on the decline.
Sell in May and Go Way has delivered 6 times more return
Historically, the six months between Nov-April frequently experienced extraordinary stock market performance than the six months between May to Oct as this table below indicated using S&P 500 index from 1950 to 2018. If investors followed “Sell in May and go away” strictly by exiting on April
If investors fully invested in S&P 500 index 100% of the time or buy & hold strategy, the index price return is 7.5% compound annually over 69 years, or $1 invested at the beginning the period it would grow to $147.
Sell in May and Go in T Bill $1 Investment Would Grow 8.4X High Than “Buy and Hold
As mentioned before, S&P 500 index only delivered 1.04% price return (without the dividend) on average for the six months of May-Oct, any alternative investment yields higher than 1.04% would enhance “Sell in May and go away” strategy. Assuming investors have taken a very prudent approach and exiting market at the end April and invested all proceeds into 3M T Bills and rolled the matured bills one more time and then invested the funds into S&P 500 index at the beginning of Nov, this strategy would generate a compound annual growth of 10.9%. By comparison, investing in S&P 500 index 100% time, or “buy and hold” generated 7.5% compound annually over the same period.
Investors would earn 3.4% incremental returns (10.9%-7.5%) over the 69 years as the average three month T Bill yield was 4.2%, or about 3% higher than Nov-April 6 month period return of 1.04%. Because of the power of compounding, the $1 growth would be $1,239 rather than $147 or 8.4X higher!
Interestingly enough, the S&P 500 index dividend yield over last 69 years was 3.3%, and which means that S&P 500 index total return including dividends was 11.03% compound annually, slightly higher than 10.9%, the return generated using “Sell in May” and investing the proceeds into T-bills strategy. Therefore, if investors had captured all dividends, his or her $1 the beginning of 1950 to the end of 2018 would be $1,367, much superior to the $1,239 of “Sell in May” and roll proceeds into T bill strategy if investors could stomach much higher volatilities along the way.
The superior performance of “Sell in May” happened much more frequently between 1950s and 1980s
“Sell in May and go away” strategy has been worked or turned out to be viable portfolio management tool , i.e., Nov-April 6 month period outperformed May-Oct period, in 49 calendar years, or worked in 71% of the time on average, over the 69 years span using S&P 500 index as proxy for the stock market.
From moving time horizon perspectives, “Sell in May” phenomenon was much more prevalent and consistent in the two decades of 50s-60s, and worked 8-9 years out of every ten years. Also, from the 1970s up to early 2000s, the frequency dropped to about 7-8 years, and in the latest business cycle since the GFC, “Sell in May” has only worked about 6-7 times over the 10-year rolling period. It dropped to a flipping coin chance of 5 out of 10 during the decade ended 2009.
A few years associated with special financial market events contributed to out-sized performance advantages for Nov-April period
hen we examined the S&P 500 index price returns over 69 years, five calendar years stand out that provided the most of the performance disparities, defined as a 20% difference, between Nov-Apr and
May-Oct period if Sell in May turned out to be right. On the other hand, when “sell in May” strategy failed to work, the under-performance never experienced negative 20% on any given calendar year over the 69 years, the only year came closer was 1973 when the 6-month period of Nov-Apr under performed May-Oct by 19.6%.
It certainly may be coincidental that almost every 10 years or so that “Sell in May” would deliver the most significant 6-month performance of Nov-Apr period as it happened in 1967, 1975, 1987 and 1998, and even in 2008, the performance Nov-Apr period was 18.1% over May-Oct period, ranked the 7th largest performance differential. The common thread among these years is pretty evident as 1987 and 1998 marked with “Black Monday” as Dow Jones tanked 23%, and the giant hedge fund, Long-Term Capitals, collapsing forced Fed to step in orchestrating rescue to stabilize financial market respectively. And in 2008, the Great Financial Crisis, triggered the stock market or S&P 500 index cliff-diving and fell 26% in two months, all these dramatic market declines all occurred in Aug, Sept, and Oct. However, even we exclude these individual calendar years or events, relative strong market performance from Nov-April month period persistent with pronounced seasonality, for example, if we assume that the 6-month period performance between Nov-April and May-Oct were the same for all these five specific years, the Nov-Apr period return would drop to 4.4% from 6.4%, still almost 4X higher than May-Oct period. The strength and trend, nevertheless, appear on the declining in the last decade.
2018 was one of the worst years for “Sell in May” and 1st four months of 2019 was also very special
Last year was the second worst year for “Sell in May and Go away” because investors would suffer a 10.8% loss if implementing the Sell in May strategy. The reason for the reversal fortune of the strategy was because that S&P 500 index delivered the highest Q2 and Q3 quarterly returns over a decade and at the same time the index experienced the worst Q4 decline over 11 years. The “Sell in May” in 2018 was only worse than in 2009 when investors would endure 14.7% under-performance over 37 years.The first four months in 2019 also fell into a very special category for the S&P 500 index from a historical perspective as the index churn out 17.5% price return for the period, the performance only happened twice, i.e., 1987 and 1975, when the index produced a better performance since 1950. If we filtered out the years of the first four-month total price return higher than 10%, hope history might provide some rhymes and clues.
As the table indicates, there were 16 out of 69 years that the first four-month price return was in double-digits, and the S&P 500 index also ended the year in higher than 10%, 22.5% on average. Of all 16 years, 19.2%, the average 6-month period performance of Nov-Apr comparing to 2.7% for May-Oct was much higher than the long-term average of this data series (6.4% vs. 1.0%). If we compared the Nov-Apr 6 month period performance to the first four-month returns (table column named “Nov-Dec Period”), there were more additional gains were expected in the final two months within a given calendar year, or more than 4% more returns on14 out of 16 years. The only exceptions were 1986 and 1987 when there were draw downs in the final two months. And also, the calendar year end returns were much higher than the first four-month returns on almost all 16 years except 1987 and 1971.
Bottom line, “Sell in May” phenomenon has been much prevalent in the past, the strong seasonality are still present but the frequencies and magnitude of performance disparity between Nov-Apr and May-Oct appeared to be on the decline.