Does “Sell in May” Really Work?

There’s an old Wall Street saying that investors should “sell in May and go away.” Recent years have been excellent examples. Last year, the stock market peaked on April 29th and in 2010, it peaked on April 23rd. This year, the S&P 500 is down since April 2nd.

I recently crunched all the Dow’s daily closing figures going back to 1896 and found that there is, indeed, a seasonal effect. The chart below shows what the Dow has done, on average, throughout the year. Historically, the Dow hits a peak on May 6th and pulls back an average of 1.33% by May 25th. The chart shows that even by October 27th, the Dow has advanced just 0.34% from May 6th. This means that the market is nearly flat for slightly more than one-third of the year. Excluding that period, that has gained an average of 7.5% for the rest of the year.

Posted by on April 11th, 2012 at 1:34 pm

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