Now that April is in the books that old Wall Street adage of “Sell in May and Go Away” is making its annual tour around the world of financial media. The reason this is such a commonly rehearsed phrase this time of year is that it was one of many seasonality trends first introduced by Yale Hirsch in his book, The Stock Traders Almanac.
The theory is rooted in historical research which shows that stocks tend to experience their worst performance between the months of May and October. Alternatively, the best months of the year typically occur between November and April, which is what we're going to cover in this post.
Notice how significant the disparity in average return is between these two six month timeframes.
As you guys know, we've had a much more defensive approach to the stock market over the past few weeks, especially compared to how bullish we had been for so long. There is a time to be big and aggressive and a time to be small and cash heavy. I believe we're currently in the latter of those two categories.
How often does someone tell you to Remember to Buy In November? Probably not as often as you'll hear Sell in May and Go Away!
But what does this all mean? What are these silly nursery rhymes all about and why should we care? Or should we even care at all?
You'll hear even some of the smartest and most experience market participants dismiss market seasonality altogether, almost as if they're too good for it. Maybe they're scared of things they don't understand, like my 2 year old cousin gets when she's confused. Or maybe seasonality is not as intellectually satisfying to them as say something like, fed policy or trump impeachments.
Either way, we do care about seasonal trends at All Star Charts because they help us with both identifying market trends and risk management. Here's what US Stock Market Seasonality means to me:
