Why this bullish strategist sees a midyear pullback in the cards

Stocks may be holding steady so far under President Donald Trump, but one market strategist warns a pullback could be on the horizon.

The classic "sell in May and go away" market adage warns investors to sell their stock holdings in May to avoid what is historically a seasonal decline in equity markets. And if history is any indication, according to CFRA Research Chief Investment Strategist Sam Stovall, investors would be wise to adhere to the saying this year.

History shows the stock market has fallen 80 percent of the time between May and October during the first year of Republican presidents' terms.

"Every Republican president since Teddy Roosevelt has experienced a recession in their first term in office, with all but one of them having it happen in the first two years in office, so there is a historical precedent for some concerns," Stovall said Thursday in an interview on CNBC's "Trading Nation."

And when he breaks out that "sell in May" period that begins after the first 100 days of presidents' terms, he found that, indeed, 80 percent "of the observations for Republican president shows a decline in that six-month period."

Though Stovall remains bullish in the long term, with a 12-month target of 2,460 on the S&P 500, he believes a pullback would be "refreshing," he wrote in an email to CNBC. He does not see a bear market in the cards, as he sees no recession on the horizon, though he noted equities are relatively expensive at current valuations.

To be sure, Stovall added, there's no guarantee that history will repeat itself, "but I think for those people who have been sitting on their hands waiting for some sort of a pullback, digestion of gains, whatever term you want to use, maybe it will be coming in this May through October period," he said Thursday.

Stovall said, too, that he is watching for more information from the Trump administration on how it will carry out tax policy and, of course, a decision in the key health-care vote expected on Friday.

The major U.S. indexes were modestly positive in Friday trading.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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