"Sell in May and go away" is one of the oldest market adages, suggesting investors should sell stocks in May and return to the market in November. The full saying is "Sell in May and go away, come back on St. Leger's Day" (a British horse race in September). But does this strategy actually work? Let's examine the historical evidence.
The History Behind the Saying
The phrase originated in London's financial district, where bankers and aristocrats would leave the city during summer months for extended vacations. With fewer participants, markets became less active. The pattern has been documented in financial literature since the 1930s.
Key finding: Since 1950, the S&P 500 has returned an average of +1.9% from May through October, compared to +7.1% from November through April. The winter period has been positive 77% of the time versus 65% for the summer period.
Historical Performance Data
S&P 500 Returns by Period (1950-2024)
- May-October average: +1.9%
- November-April average: +7.1%
- Difference: 5.2 percentage points annually
- May-October positive: 65% of years
- November-April positive: 77% of years
Monthly Breakdown (May-October)
- May: +0.2% average, 57% positive
- June: +0.1% average, 53% positive
- July: +1.3% average, 59% positive
- August: +0.1% average, 55% positive
- September: -0.5% average, 45% positive (worst month)
- October: +0.8% average, 59% positive
Decade-by-Decade Analysis
- 1950s: May-Oct +2.3%, Nov-Apr +7.8%
- 1960s: May-Oct +1.1%, Nov-Apr +5.4%
- 1970s: May-Oct +0.8%, Nov-Apr +5.1%
- 1980s: May-Oct +3.4%, Nov-Apr +8.2%
- 1990s: May-Oct +3.8%, Nov-Apr +11.4%
- 2000s: May-Oct -0.9%, Nov-Apr +1.2%
- 2010s: May-Oct +3.1%, Nov-Apr +7.9%
Why Might This Pattern Exist?
Institutional Factors
- Vacation effect: Lower trading activity during summer
- Fund flows: Year-end bonuses invested in winter months
- Mutual fund fiscal years: Many end October 31
- 401(k) contributions: Often front-loaded early in year
Behavioral Factors
- Optimism cycle: New Year resolutions boost January buying
- Summer distraction: Less investor attention in summer
- Holiday shopping: Retail optimism in Q4
- Self-fulfilling prophecy: Traders act on the pattern
Arguments Against Sell in May
The Pattern Is Not Consistent
- May-October was positive in 65% of years
- Some of the best months occur in summer (July)
- Missing good summers can hurt long-term returns
- 2020 COVID rally: May-October +19%
Transaction Costs and Taxes
- Selling in May triggers capital gains taxes
- Transaction costs eat into small seasonal advantage
- Timing re-entry in November is not always easy
- Dividends missed during summer months
Recent Weakening
- Pattern has been less reliable since 2010
- May 2020-October 2020: +19% (COVID rally)
- May 2021-October 2021: +11%
- Algorithmic trading may have arbitraged away the edge
Modified Strategies
Defensive Summer Approach
Instead of selling completely, reduce risk during May-October:
- Reduce equity allocation by 20-30%
- Rotate into defensive sectors (utilities, staples, healthcare)
- Increase bond allocation
- Hold more cash for opportunities
Sector Rotation Approach
- May-October: Overweight defensives, underweight cyclicals
- November-April: Overweight cyclicals, underweight defensives
- This captures seasonal tendency without fully exiting
Options Strategies
- Buy protective puts in May for summer protection
- Sell covered calls to generate income
- Use collars to limit downside
- Reduce delta exposure without selling shares
When Sell in May Failed
Notable Exceptions
- 1987: May-August +17% (before October crash)
- 1995: May-October +13%
- 2003: May-October +14% (post-Iraq recovery)
- 2009: May-October +20% (post-crisis rally)
- 2020: May-October +19% (COVID recovery)
When It Worked Best
- 2008: May-October -30% (financial crisis)
- 2001: May-October -19% (9/11, dot-com crash)
- 2002: May-October -18%
- 2011: May-October -8% (debt ceiling crisis)
How to Use This Information
For Long-Term Investors
- Do not use this as a primary strategy
- Time in market beats timing the market
- Consider for tactical tilts, not wholesale changes
- Factor in your tax situation
For Active Traders
- Use as a risk management overlay
- Reduce position sizes in summer
- Be more selective with new positions May-September
- Look for oversold opportunities in September
Track Your Seasonal Trading Results
Pro Trader Dashboard helps you analyze how your trades perform during different seasons of the year.
Summary
The "Sell in May" pattern has historical validity - the May through October period has indeed underperformed November through April over the long term. However, the difference has narrowed in recent years, and blindly selling in May means missing some strong summer rallies. A better approach is to use this information for risk management: be more cautious with new positions during summer, consider defensive sector rotations, and prepare for the historically strong winter period. The pattern is real but not reliable enough to warrant a complete exit from the market every May.
Related reading: seasonal trading patterns and Santa Claus rally.