With the stock markets coming off their best month in a long time, should you take profits and follow the old adage "Sell in May, Go Away?" The answer is not so clear.
On an historical basis it is true that the average return for the Dow and S&P between November 1 and April 30 is nearly double the return for the six months between May 1 and October 31.
Dow Jones Industrial Average since 1897:
- Avg gain from May to October has been 2.5%, up two thirds of the time
- Avg gain from November to April has been 4.6%, up two thirds of the time
The numbers are about the same for the S&P 500 since 1928, at 2.5% for May-Oct and 4.4% for Nov-Apr.
However, taking a closer look there are some interesting observations that may suggest not to "go away" this year. Looking at the two thirds of the times that the respective 6-month periods had gains, the differential shrinks significantly. In those years, the average gain for the Dow over the summer is 10.3% vs. 12.0% in the Winter. The best year for May-Oct had a 38% gain vs. a 40% gain for the best Nov-Apr.