Have you ever heard of the saying “Sell in May and Go Away”? This popular phrase was coined because historically the worst months to own stocks have been from May to October (average performance of 1.5%).
The thinking is that it’s smart to take any gains you have received from January to April and avoid any pain starting in May. I disagree with this logic for several reasons, but I will explain in a future post.
However, despite the pundits warning people to sell this year in May, the S&P 500 was up 8% from May to October. LPL Financial did research on the 23 years since 1950 when the stock market gained over 5% from May to October. Interestingly, they found that in these years the average performance for the period from November to December is 5%.
It is worth repeating that past performance will not guarantee future results. The positive news from this data is that the last quarter of the year is typically the best time of year for the stock market. This makes sense since workers are back from their summer vacations, the economic impact of the holiday season, and funds needing to show positive performance before end of year statements are sent out to clients.
I have noticed this year that there were several talking heads trying to scare people out of stocks because of the long bull market. If you had listened to their advice you would have lost out on a 15% gain in the S&P 500 so far this year. With such poor advice from Wall Street, it’s no wonder that Warren Buffett was able to win his bet against hedge funds.
Even if we don’t get another 5% gain to make it 20%, this year has been fantastic, with many companies posting earnings surprises. As long as there is positive earnings growth and valuations don’t get out of hand, this market should continue to inch higher.
When you are in a strong bull market like we are in now, it’s important to stick with your winners. If you sell stocks because of a famous rhyme you may not be able to buy them back before they power higher. I will be holding on to my stocks through the end of the year. It will be icing on the cake if we see a 5% or greater return on top of the YTD returns.