U.S. equity indexes are on track to register their best start to a year in decades and the sharpest April gains in about 10 years. The solid returns thus far in the fourth month of 2019, however, may raise questions about how gains will shape up in the coming period, as Wall Street focuses on a popular seasonal investing adage.
“Sell in May and go away,” — a widely followed axiom, based on the average historical underperformance of stock markets in the six months starting from May to the end of October, compared against returns in the November-to-April stretch — on average has held true[1], but it’s had a spotty record over the past several years.
| Average | May-October | November-April |
| 5 year | 4.31 | 5.53 |
| 10 year | 3.86 | 8.67 |
| 20 year | 0.55 | 4.89 |
| 50 year | 0.31 | 7.56 |
| All-time | 2.08 | 5.13 |
Read: The ‘easy 10%’ has already been made — now get ready for February (gulp)[2]
For one, stocks over the six-month span ending in October have posted comparatively weaker returns in only three of the past five years, with 2017 showing a more than 8% gain, compared with only a 2.8% gain from November of 2017 to end of April of 2018, according to Dow Jones Market Data.
Presently, the period from the end of last October through Tuesday, the last day of April, is poised to produce a return of roughly 8.2%, according to FactSet data.
Sophie Huynh, strategist at Société Générale, told MarketWatch that unloading stocks over the coming six months could prove costly for investors.
“It’s not going to work this year,” Huynh said of the sell-in-May strategy.
The SocGen strategist bases her expectations partly on the belief that much of the bad news, including downgrades to earnings, that would ordinarily weigh on markets from May to the end of October have already been factored by investors.
“As I said, the reason why it won’t work is really because EPS [earnings-per-share] growth expectations have been massively revised down. So 2019 EPS growth went from 10% in September 2018, to 3.2% currently, in tandem with the U.S. economic surprise indicator,” she explained.
The Citi Economic Surprise Index for the U.S. hit negative 57.1 recently. A positive reading suggests data are better than expected, while zero indicates data meet expectations, and a negative reading reflects worse-than-expected readings. The index tends to swing back and forth as expectations rise and fall with data...