What challenges are analysts highlighting regarding seasonal norms in trading this year? What historical patterns suggest that May could be a strong month for investors? How do recent policies and geopolitical issues influence market trends?
In a market dominated by shocking headlines and policy whiplash, seasonal mottos like the old favorite, "sell in May and go away," might need a rethink. After an unprecedented stretch of years for investors, marked by a pandemic, the highest inflation in four decades, and now a sweeping trade war, market strategists say seasonality has become much harder to predict. "I don’t think seasonal norms will be as useful in such an uncertain policy environment," Ross Mayfield, an investment strategist at Baird Wealth, told Business Insider. "The outcomes of the tariff, trade war, tax bill, and debt ceiling will have far more of an impact on returns than seasonal patterns."
It became obvious before 2025 even began that trading this year might be off-kilter. Consider that the annual "Santa Claus rally" failed to manifest in December, as earlier gains in the S&P 500 led to a rare decline that month. Meanwhile, April — typically one of the year’s three best-performing months — saw the S&P 500 fall 1.1% as tariff escalations sent volatility soaring and investors fleeing stocks.
"Sell in May and go away" is tried and true—LPL Financial says the adage can be traced to London as far back as 1776—and it reminds investors that the summer months tend to be slow for the market. Since 1950, the six-month period between May and October has seen a mild gain of about 1.8%. This year, though, it’s anyone’s guess what could happen amid the trade war, a potential recession, and ongoing geopolitical strife.
"In a benign environment, you would expect to see your positive seasonal trends, but, especially after the last six weeks, who knows what we’re going to be talking about," Bespoke Investment Group co-founder Paul Hickey told BI.
If historically strong months are flopping this year, then the summer may hold its own surprises, too. "When it comes to markets, tariff uncertainty and monetary policy right now have the power to make it rain or part clouds into sunshine," Adam Turnquist, LPL Financial’s chief technical strategist, wrote in late April.
To be sure, there are some positive catalysts that could occur in the "sell in May" window: trade deals are no longer just talk, and President Donald Trump’s promised pro-growth policies are expected to take center stage later in the year. Yet, recession risk will continue to loom over investors, while other commentators warn that future trade deals are already priced in and won’t fuel more gains. In fact, Pepperstone’s Senior Research Strategist, Michael Brown, suggested that investors do listen to the May adage and sell into rallies.
"The balance of risks does tilt in favour of that saying ringing true this year, given the huge degree of trade uncertainty, chunky downside economic growth risks, and considering how the recent relative calm on the tariff front seems to have lulled investors into a bit of a false sense of security," he wrote this month.
But recent years should give investors even more pause before trusting the usual seasonal indicators. Mayfield told BI that stocks have been performing better in the six months between May and October lately, returning 4.6% over the last 10 years. In three of the last five years, this timeframe yielded double-digit gains.
That could be true this time around, given that an ultra-bullish market signal was triggered in late April. The Zweig Breadth Thrust indicator, which measures broad stock market participation in an ongoing rally, historically boosts the market through seasonal stagnation, the Leuthold Group wrote recently.
Meanwhile, data tracked by Carson Group’s chief market strategist Ryan Detrick found that buying in May has made more sense in recent years, and the month is especially strong in postelection years, he wrote, rising by 1.6% on average.
Read the original article on Business Insider.
Sell in May and Go Away? Historic Volatility is Crushing Investors’ Favorite Seasonal Indicators
The adage "Sell in May and go away" has long been a staple of investment strategies, suggesting that equities tend to underperform in the summer months, while the fall and winter months are often more lucrative. However, recent years have seen historic volatility that challenges traditional seasonal indicators, leaving investors questioning the effectiveness of this old adage.
Understanding the Maxim
"Sell in May and go away" stems from historical market patterns that indicate poorer performance during the summer months. The rationale behind this sentiment often includes factors such as lower trading volumes, as many market participants take vacations, and the fact that companies report quarterly earnings during these months, which can exacerbate volatility.
The data supporting this maxim has, in many cases, been compelling. Over a series of decades, the summertime has implied lower returns for equity investors, with a popular analysis showing that a buy-and-hold strategy from November to April significantly outperformed one that spanned the entire year.
The Current Economic Landscape
However, the past few years have introduced new challenges and dynamics that call into question the traditional wisdom behind this seasonal strategy.
Historic Volatility: The COVID-19 pandemic, geopolitical tensions, economic recovery hurdles, and supply chain disruptions have led to unprecedented market volatility. Indices such as the S&P 500 have experienced bouts of wild fluctuations that were once unthinkable. The volatility index (VIX), often referred to as the market’s fear gauge, has seen spikes that may indicate a shift in market behavior, making time-tested seasonal trends harder to predict.
Changing Investor Behavior: The rise of retail investing, fueled by apps like Robinhood and trade platforms that allow for commission-free trades, has transformed the market landscape. More everyday investors are participating in the stock market, and their behavior does not always align with traditional patterns. This influx of retail investors has led to new trends—like meme stocks—where shares can soar or plummet based on social media momentum rather than fundamental performance.
- Technological Advances: Algorithms and artificial intelligence now dominate trading strategies. High-frequency trading firms use complex algorithms that react to market conditions in milliseconds. This technology can exacerbate volatility and make it harder for traditional seasonal patterns to hold.
The Case for Staying Invested
Given the challenges in relying on historical norms, many financial advisors now advocate for a nuanced approach to the "Sell in May" strategy. Instead of rapidly executing trades based on past patterns, a more robust strategy may be to remain invested while performing a thorough analysis of current market conditions.
Diversification: Maintaining a diverse portfolio is crucial in mitigating risks. Rather than relying solely on seasonal trends, savvy investors should ensure their portfolios are diversified across asset classes and sectors. This approach can provide stability, even in tumultuous market conditions.
Revisiting Assumptions: Investors should critically assess their underlying assumptions around market timing. This includes questioning whether exiting the market in May may lose out on significant growth opportunities—especially given the unpredictable nature of market recoveries.
- Continuous Research and Adaptation: Market conditions are ever-changing, and staying informed about economic indicators, earnings reports, and global events is essential. This goes beyond just traditional metrics to include understanding consumer behavior, technological advancements, and shifts in governmental policy that can influence market performance.
Historical Context and Future Predictions
While it’s essential to be aware of historical trends, understanding their context is equally critical. The history of financial markets has shown numerous instances in which investors who adhered rigidly to seasonal strategies lost out on substantial returns by not staying invested during periods of growth.
Experts are now considering whether the factors that typically influence seasonal trends—like earnings, economic indicators, and seasonal consumer behavior—may evolve. Future predictions involve a recognition that economic cycles may not fit neatly into historical patterns, and that volatility may become a more permanent feature of investing.
Conclusion
The maxim "Sell in May and go away" served as practical advice for generations of investors, but historic volatility poses a significant challenge to its reliability. In light of unprecedented events and the rapidly changing market landscape, a more balanced and analytical approach is warranted. Staying informed, adapting strategies to current conditions, diversifying portfolios, and understanding the limits of historical trends could better prepare investors for the unpredictable nature of modern markets.
As we move further into an era characterized by rapid change and uncertainty, the wise investor may choose not to "go away" but to remain engaged, informed, and adaptable in pursuit of financial growth.
The phrase “Sell in May and go away” refers to a market adage suggesting that stock prices tend to underperform during the summer months. Historically, many investors and traders would sell their equities in May and return in October, believing that this strategy could help them avoid market downturns.
However, recent market conditions have shown significant volatility, impacting the reliability of this seasonal indicator. Factors such as economic shifts, geopolitical tensions, and changing consumer behaviors can have a profound effect on market performance, often overshadowing historical patterns.
As volatility increases, many investors are reassessing their strategies, focusing on diversification and risk management rather than relying solely on seasonal trends. The current environment calls for a more nuanced approach, blending traditional wisdom with a modern understanding of market dynamics. This adaptation may involve seeking new opportunities or employing different strategies to navigate the unpredictable landscape.