Here's what you lost if you sold in May

Now, some investors are leaning toward the 'sell in fall' camp.

By MSN Money Partner May 30, 2014 2:12PM
Caption: A trader works on the floor of the New York Stock Exchange
Credit: © Peter Foley/CorbisBy Ben Eisen, MarketWatch

The "sell in May and go away" proposition doesn't look promising based on the past month of stock market action.

The popular notion that investors should ditch stocks as the weather warms up at the beginning of May and wait until the fall to buy back into a (presumably) cheaper market hasn't yet played out. 

The Standard & Poor's 500 Index ($INX) is on track to close out the month 1.9 percent higher, its biggest gain since February. The  Dow Jones industrials ($INDU) are on track to close 0.7 percent higher.

One general thought process behind the "sell in May" idiom is that investors who are overly excited to get a jump-start on the year push stocks into overbought territory by May. The market takes a breather over the summer and trends toward oversold by the fall -- just in time to jump in.

The truth behind it depends on who you ask, and how you construct the trade. The 2014 Stock Trader's Almanac notes that between 1950 and 2012, the S&P gained 1,663 points between November and April, while losing 83 points between May and October. The Dow gained 16,398 points during the November-April period while losing 1,772 points during the other months. 

In other words: the trade works. Then again, 20-year data paint a different story. According to technical strategist Ryan Detrick, May has generally been a winner for the past two decades.

This year, the May gains in the S&P were led by the technology sector, which was up 3.5 percent on the month. Some of the biggest gainers included SanDisk Corp. (SNDK), up 14 percent; Electronic Arts (EA), up 23 percent; Micron Technology (MU), up 10 percent;  and Apple (AAPL), up 8.6 percent. The telecommunications sector was also up 3.2 percent.

So what does this bode for the summer? Of course, nothing is certain, but a fair number of market commentators were skeptical of the trade in the first place. As MarketWatch columnist Nigam Arora wrote on May 1:

"The problem with sell in May and go away is that anyone worth his or her salt knows about this phenomenon. All investors seek an edge. Some investors sell in April in anticipation of May. Others buy prematurely. The point is that investors try to game this phenomenon. It is worth remembering that any phenomenon that is known well does not work well when it comes to generating profits."

On the contrary, former Goldman Sachs Asset Management chairman Jim O'Neill told MarketWatch at the beginning of the month:

"I'm slightly in the negative camp, because I also believe in this 'sell in May and go away' thing. If you look at the past 50 years, it kind of works. For whatever crazy reason. There’s no logical reason, but it works."

MarketWatch's Michael Kahn was also in favor of rotating out of most stocks in May.

But there's also a third camp who see a break lower in stocks; they just don't see it happening over the summer. Bank of America researchers could adequately be characterized as "sell in fall" folks. They write in a note this week:

"We stick with the view that a summer melt-up would likely be followed by a nasty correction in the autumn. But short-term capitulation into asset markets remains a likely scenario."

But as always, a new month has the promise of a new trend taking shape.

More from MarketWatch

May 30, 2014 5:08PM
None of the rules apply anymore except invest for the long term.
May 30, 2014 4:56PM

Selaretus....Yes 185% of "nothing" is nothing...

But no one went back into the Markets, with "nothing" unless they bought everything on Margins..

I don't believe they can do that...??

For some that "never left the markets..." It's been FANTASTIC...!!!!

From before the "downturn" we have seen an increase of 15-20% above a "2 BAGGER" 215%+

From the bottom of the downturn (for us Nov-Dec 2008), others maybe Spring of 2009...??

We have risen to date 325%...That is not chicken feed, Mon..!!

The last 3-4 years or so, "all dividends" have been reinvested or reallocated, and compounded.

That helps....(added over 20%).

But we only lost or dropped 22-23% on the bottom....That also made a difference.

And that "chicken feed" has paid for a new car, remodeling on the house, and whatever else we want to do.

I'm mostly going to "give credit" to ourselves.....No one else.

May 31, 2014 5:40PM
You didn't lose anything if you sold in early May and walked away with 30% gain from last year.
May 30, 2014 4:58PM
The Combined Central Banks of the United States, ECB, and the BOJ have over $9Trillion in QE to infinity on their Balance sheets. That's why stocks to this point are still moving Higher. That's why the Mother of all Bull Markets has yet to end.

Funny how in the ME World, the Now World, so many posters refuse to talk about the future cost of propping up Stock Markets. The Cost to the SS and Medicare Trust Funds. The Cost to Seniors who don't want to Risk money in stocks yet are being Denied Real levels of Interest Income on Savings. There is no such thing as a free Ride. Sooner or Later, even the Mother of all Bull Markets will find it isn't immune.

May 30, 2014 5:23PM

ie; "pertaining to negative camp and selling in May".

Dave that connects to old axioms...

The silent majority, led by the vocal minority, leading to mass hysteria of the many.

When asked why ? Everyone looks befuddled, will except no blame and point to one or another.

I don't know about the truth of Lemmings...

But I do know about Sheep, Cattle and Horses, it's called Stampeding...

Or "spooking the herd"....Hence the term: "Herd mentality in Humans."

May 30, 2014 8:31PM
So KOO, basically you're telling everybody that as long as THEY give YOU money, that YOU'LL vote for THEM?
May 30, 2014 3:50PM

Wolf.....Hug your kids, spouse or other loved ones....

The Market is just a thing...

You probably don't really know Obama...?

And doubt that we are familiar with Bernanke or Yellen either...??

Yes, it's been a GREAT month, 1st. Quarter, year so far, and the past 5+ years too.. 

May 31, 2014 8:43PM
The market is still barely in the black for the year. That's 5 months of next to nothing. I Could have gone away after Christmas and not missed much. 
May 31, 2014 7:05PM

"Here's what you lost if you sold in May. The truth behind it depends on who you ask, and how you construct the trade. In other words: the trade works. Then again, 20-year data paint a different story. According to technical strategist Ryan Detrick, May has generally been a winner for the past two decades."

My biggest problem with this Article and some of the responses is that some folks seem to actually think the last two decades will be a PROMISE for the next two decades. Another problem I have is that folks think this is a contest when in FACT, many times this is folks LIFE Savings. Telling folks how they are losing out to inflation without also telling them they can lose their entire Retirement by using Stocks to beat out inflation is just plain immoral in my Book. The Stock Market plain and Simple involves Risks. For folks to behave as if that isn't the case is just plain immoral. Each person has to determine their own needs and not solely base decisions on the past which are  hardly a promise for the future.

adjective: immoral
not conforming to accepted standards of morality.
"an immoral and unwinnable war"
unethical, bad, morally wrong, wrongful, wicked, evil, foul, unprincipled, dishonorable, dishonest, unconscionable, iniquitous, disreputable, corrupt, depraved, vile, villainous, nefarious, base, miscreant, etc......

May 30, 2014 5:47PM
@ Smeado -  Your post is probably the best and most accurate analysis I've read in a long time on these sites.  :)   
May 31, 2014 6:17PM

Depends on china and Europe economy, oil, steel, energy, and housing markets in the United States also unemployment is, spending, and consumers spending all these played in wall streets.

As for stocks during Obama era, he has nothing to do on the raised on stocks this country owed too much to china that they could put the plug anytime investing in America.

May 31, 2014 5:44PM
So you're supposed to leave $1,000,000 invested instead of putting $400,000 in cash to make $10-20,000, 1-2%, more profits?  That's not my flavor of Kool-Aid!
May 31, 2014 11:13AM
Actually, the historical average for the 6 months of May through October is a 2% return - which means a 4% annual rate.  If you pull your money out for 6 months, where do expect to get better than a 4% rate?  Not to mention the costs of selling and reinvesting and potential taxes.

As Jerry Reed wrote and sang, "Put all the money in and let's roll 'em again: when you're hot you're hot!"

Over the long term (10 years), you're almost guaranteed a decent total return if you stick to solid stocks and don't try to time the market.

Jun 1, 2014 4:21PM
The whores at the Wall Street bought firm. FED, will see to it the stock market keeps them and their wealthy friends in the money. Price tag? $4.1T. And then there's the opposite side of this lunacy. BILLIONS lost to we SAVERS. Hang the FED at high noon, raise rates back to 3% and watch all of this melt down to Dow 5,000.
Jun 1, 2014 10:27AM

Too many times we attach what an investment is worth or has paid; To what Markets do..IMO

Overall Markets and Wider Indices such as the S&P, maybe the RUT, or Wilshire may only be up 2%

for example...

When maybe another Index or Sector could be up 8%, or down 5%..?

There are hundreds of investments, even outside of Wall St. or Stocks...

Picking good Stocks or Companies, or the right piece of Property, maybe the better Material item..?

Can make all the difference; Some of us don't do enough research, and some of us are luckier than others....The best we can sometimes hope for is to "increase our odds" for success.

And that can make the difference, between winning or losing..

Jun 2, 2014 8:35AM

No one gained and no one lost as no one here invests.  Stop with the BS.  Analyze all you want to and look the stuff up on your "machine".  Markets go wherever and has nothing to do with anything.

How can anyone take the "markets", seriously?  People don't work because they do want to or have to, period.  Welfare is cool and the checks keep coming.  No problem. 

May 31, 2014 7:01AM
Smead posted, 'None of the rules apply anymore except invest for the long term."

Saltguy, Response, "Your post is probably the best and most accurate analysis I've read in a long time on these sites."

Retog then states, "Yes Smeado's comment is about as good as it gets; And simple too."

What I want to know, after the Mother of all Bull Markets, just what are these three and others smoking. Contrary to what some are saying are hoping, this hardly a Fresh Bull likely to run much Harder from here. And even if it does, that just means the eventually pullbacks will be far deeper and longer. Smead, Saltguy, and Re-Tog comments are based far more on Pie in the Sky Hope then what the FACTS on the ground are supporting.

All three and others are saying invest for the longer term without addressing any of the Looming issues that have never been addressed concerning Derivatives, Normal Debt, Shadow Banking, Peak Oil, Systematically High Global Unemployment, Future Debt Interest, and the Social Security and Medicare Trust Funds issues just to name a few.

To even suggest that the LONG TERM is the only  Rule which applies is basically asinine. If anything, with the pitfalls we currently face in the Future and the FACT of how we have already benefited from the Mother of all Bull Markets, it's remarkable that humans never learn from past mistakes.

May 31, 2014 5:37PM

Walking away in May....When are you coming back...??

What if everything keeps trending up...??

You might want to sell a high flyer in May or before, then reinvest in something else later?

Or go back in, if there is a deeper correction on an ex-div date or shortly after...??

(earnings and revenue releases)

I've tried timing 3-4 times with parts of investments...It never really works all that well..

Sell, buy back...

Made about 4% one time, broke even or near twice, and lost or bought back at 3% more once...

It's just a lot of Headaches, and doesn't work that well...

And you better do it only in, an IRA or a ROTH....Or you have tax headaches too.

May 30, 2014 4:53PM
"I'm slightly in the negative camp, because I also believe in this 'sell in May and go away' thing. If you look at the past 50 years, it kind of works. For whatever crazy reason. There’s no logical reason, but it works."

Actually there's perfect Logic to it. Once enough folks take hold to something, it becomes a self-fulling prophecy or a given Reality. How else do folks think so many different Religions have taken hold over the Eons.
May 30, 2014 5:25PM
The CBO:"Between 2015 and 2024, annual budget shortfalls are projected to rise substantially from a low of $469 billion in 2015 to about $1 trillion from 2022 through 2024"

The BOJ, doubled its monthly asset purchases to 7 trillion yen ($73 billion). That means that in per-GDP terms it is now pumping far more currency into the Japanese economy than what our Fed was doing at $85 billion a month in an economy that three times Japan's size.

Nov 2013
Year-to-date, companies have issued $873.1 billion in debt, up from last year's $813.5 billion

May 2014
Corporations of the Standard & Poor’s 500-stock index spent $477 billion last year buying back their own shares, a 29 percent increase over 2012 and the most since the peak year of 2007

So folks can say whatever they want but the bottom-line is this QE to Infinity is the driving force behind Global Stock rising. It will also eventually be the reason why they do just the opposite.
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