Wall Street is buzzing with debate over the age-old adage, “Sell in May and go away,” as some financial analysts suggest that this year may be worth reconsidering the wisdom behind it. The adage implies a seasonal trend where the stock market often underperforms from May through October, a time when traders typically take vacations, leading to reduced liquidity and increased volatility, which can result in sharper price declines.
However, this year presents a more nuanced picture, according to Jeffrey Hirsch, the editor in chief of the Stock Trader’s Almanac. “Is this the year to not sell in May and go away?” he questioned, encouraging investors to monitor market movements closely. Notably, the S&P 500 and Nasdaq Composite have recently reached all-time highs, displaying remarkable resilience despite ongoing geopolitical tensions in the Middle East. This strong performance is coupled with improving breadth beneath the surface of the market.
Technical indicators also support a generally positive outlook. Hirsch highlighted the Moving Average Convergence Divergence (MACD), a tool that indicates market momentum through a comparison of short- and long-term moving averages. Current readings suggest that the rally still has room to run, but caution is warranted as economic signals become more mixed.
The most recent GDP forecast from the Atlanta Fed reveals a decrease in U.S. GDP growth expectations, now projected at 1.2% for the first quarter, down from previous estimates that exceeded 3%. Alongside this, concerns linger about the impact of artificial intelligence disruptions in the labor market, which may not have been fully incorporated into economic analyses.
A critical factor influencing market direction is the ongoing conflict between the U.S. and Iran, particularly regarding the Strait of Hormuz. Should a resolution be reached, it could relieve investor anxieties and boost market confidence, especially as rising gas prices begin to affect consumer spending—evidence of which was noted in a recent CNBC survey. Hirsch emphasized that if the conflict sees a stable resolution, the stock market is likely to trend higher between May and October.
Conversely, if the situation deteriorates, and significant technical indicators, like the MACD, signal a market downturn, then it may be prudent for investors to reduce their exposure. Historical data supports the theory that the six-month stretch from May to October tends to yield poor returns, particularly during midterm election years. Since 1945, the S&P 500 has averaged only a 2% gain during this period, with midterm years showing an average decline of 1.2%.
Not everyone agrees that the historical pattern will hold true this year. Paul Ciana, chief market technician at Bank of America Securities, believes this year’s market will challenge the “Sell in May” narrative. He suggests that traders may benefit from buying in May and selling in the July-August timeframe, followed by anticipated weakness later in the year.
As for his own strategy, Hirsch indicated that he is pivoting into shorter-term cash and bond instruments, favoring options such as the iShares 0-3 Month Treasury Bond ETF and the iShares Core U.S. Aggregate Bond ETF. Additionally, he expressed a preference for the utilities sector, suggesting that investors might not need to completely exit the market but rather adjust their positions accordingly to navigate the uncertain landscape ahead.
