Monday, May 6, 2013

The Market Faces Seasonal Headwinds

Over the last few weeks, I know I'm not the first to mention the "Sell in May, Go Away" truism, but figured I'd give my two-cents on the subject anyway.

The following chart shows the S&P 500 for this year compared to its averages over the last 5-, 10- and 30-years:

Source: Bloomberg

As you can see from the averages, in general the stock market does tend to rise from November through April and decline from May through October. And notice so far this year the S&P 500 has performed quite well (red line), to put it lightly.

I would also mention that BofA Merrill Lynch recently published a study on the seasonal tendencies of the market (S&P 500). The study considered average 6-month returns for the S&P 500 going back to 1928. In that time, the average 6-month return was 3.6% with the May-October period returning half that number, just 1.8%. The November-April period returned 5.0%.

All of this said, I emphasize that seasonal tendencies are just that, tendencies. There are never any guarantees or certainties when it comes to investing. However, when such tendencies in the market reoccur frequently and fairly consistently for almost 100 years, perhaps it's something worth keeping in mind. 

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