Trader Talk

The dreaded 'sell in May' effect may be overrated

Traders work on the floor of the New York Stock Exchange.
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That famous quirk of the market, "Sell in May and Go Away"...doesn't work —again.

For the second year in a row, the catchphrase hasn't panned out, with the S&P 500 posting a healthy 1.9 percent gain going into the last trading day of the month. In fact, the May effect has hardly been uniform over the last five years. Take a look:

2014: up 1.9 percent

2013: up 2.1 percent

2012: down 6.3 percent

2011: down 1.4 percent

2010: down 8.2 percent

2009: up 5.2 percent

There is, however, a huge differential in the S&P 500. After a bleak winter, retailers have suffered through a terrible month:

Target down 9.5 percent

Coach down 9.0 percent

Staples down 9.0 percent

TJX down 6.4 percent

Wal-Mart down 4.6 percent

Avon down 5.8 percent

The retail standouts are Tiffany, up 13 percent this month, and Nordstrom, up 10.6 percent. Airlines and home builders were also winners during the month:

Southwest up 9.4%

Delta up 9.0%

Pulte up 7.3%

DR Horton up 7.2%

Neither of these, however, have big enough market caps to move the index. Southwest's is only $18 billion, while DR Horton is worth roughly $8 billion. You'd need a big mover, like energy giant EOG Resources—with a $60 billion market cap, up 9 percent near an historic high. That would move an index!

1) Ann tells you all you need to know about retail: first quarter profit was down 75 percent. Yikes!

You can't just blame it on a big restructuring charge. Sales were short of forecast as well, up 2.8 percent, but the flagship Ann Taylor stores saw a decline of 2.3 percent in same store sales. The only good news: sales picked up in April and May. Sales guidance of $670 million is basically in line with expectations, as is same store sales expected up in the low single digits.

Big Lots, the closeout retailer, did a bit better. Earnings of 50 cents were well above consensus. They even had a positive comp store sales number: up 0.9 percent; most were expecting a decline. They also raised their outlook for fiscal year slightly, to $2.35—$2.50, up from $2.25-$2.45. They are also very big in share repurchases: they have bought back about 3.3 million shares since the beginning of the year; that's roughly 5 percent of the shares outstanding.

2) Reuters ran an interesting piece on Chinese iron-ore demand overnight, noting that Chinese steel mills are cutting back on long-term iron ore contracts in favor of cheaper spot contracts. The buyers believe that iron ore prices will remain low for many years and don't need long-term contracts. While iron ore demand is still near record levels, the article quotes the head of Vale's ferrous metal division that for the first time, supply is greater than demand.

--By CNBC's Bob Pisani