As we noted last week, these next six months historically have been the worst for stocks. That is why there’s a well-known investment axiom to “Sell in May and Go Away.”
However, that popular principle hasn’t rung true for most of this bull market.
“Stocks have actually risen over this dreaded six-month stretch in six of the past seven years, while the S&P 500 Index has gained in May six consecutive years,” explained Senior Market Strategist Ryan Detrick. “Blindly going to cash and waiting until after Halloween to re-invest hasn’t been the most profitable strategy lately.”
The S&P 500 has bucked the seasonal trend recently, but we think a decisive midyear rally could be more difficult to come by this year. With the S&P 500 higher each of the first four months of 2019 and up more than 17.5% for the year (as of April 30), we think a consolidation or pullback could be warranted. As our LPL Chart of the Day shows, over the past 20 years stocks have spent the next several months in a sideways grind.
The average peak-to-trough correction during these worst six months is 11.1%. With conditions quite stretched near term, stocks could be vulnerable to a potential pullback over the coming months.
For more on our thoughts on “Sell in May,” please listen to the latest LPL Market Signals podcast here.
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