Sell In May And Go Away – Myth Or Fact – S&P 500 (Trading Seasonality)

Last Updated on October 13, 2022

Sell in May – myth or fact?

Sell in May and go away must be one of the most famous phrases in the stock market. But is this adage a myth or a fact? There are plenty of myths in the stock market that never has been tested. There is a lot of academic empirical evidence showing this anomaly has been in existence for many decades, both in the USA and elsewhere, but we like to test ourselves.

Perhaps surprisingly, the phrase is spot on. It turns out sell in May and go away makes sense, at least how we tested it.  The period from May until October is a seasonally very weak period for the S&P 500. May itself is not such a bad month, but the summer doldrums until the end of September has been weak for over 60 years.

Does this mean you should sell your stocks in May?

If you are a long-term buy-and-hold investor – no. Then you just keep your stocks and forget about it.

However, if you are a short-term trader you can exploit many of the seasonalities that exist in the stock market.

We have made an update on this post:

• Sell in May and go away update

The sell in May and go away seasonality – let’s test

We test the following on the ETF with the ticker code SPY that tracks the S&P 500 from 1993 until today:

• Buy the open on the first day of May, sell the open first day in October, versus
• Buy the open on the first day of October, sell the open first day in May.

Our time periods are not equal. We chose to exit in October instead of November because we know the 4th quarter is the best quarter historically.

Buying the open in May and selling the open in October gives this accumulated chart:

As we can see, it’s more or less a flat return over 24 years! There are “just” 9 losing periods, but they average a loss of 10,77% vs. an average gain of 7.21% for winning periods.

Buying the open in October and selling the open in May gives this accumulated chart:

Now we are talking. The annual return is 9.04% with only 57% exposure in the market (time in the market). The average winning period is 14.04% vs the average losing period of -11.16%. Just 3 losing periods: 2000, 2007 and 2008 (flat in 1993).

Sell in May and go away – conclusion:

Sell in May and go away is not a myth. All the gains in the S&P 500 since 1993 have come from being invested from October until the end of April. One of the main reasons is that both August and September are the two worst months of the year in stocks.