Sell in May? Stay but get defensive, CFRA says

Published Tue, Apr 28 202011:51 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

( This story is for CNBC Pro subscribers only ). The calendar will soon turn to what is historically one of the worst periods for stocks, but CFRA said in a note to clients that investors should rotate and not sell. The old Wall Street saying to "sell in May" has some support in historical data, but there are a few sectors that could be smart buys, CFRA chief investment strategist Sam Stovall said in the note. Since 1946, May through October has been the weakest six-month stretch on average for the S & P 500, with an average return 5.1 percentage points below the performance in November through April, according to SFRA. That relative underperformance doesn't mean investors should sit on sidelines, SFRA said. "Even though the average advance of 1.4% for the S & P 500 from M-O is the weakest of all 12 rolling six-month periods, it delivered an annualized return of nearly 3%. This is still better than what an investor would have received from a money market," Stovall said. In particular, consumer staples and health care stocks tend to outperform the market during this period. Since 1990, a hypothetical portfolio that owned those sectors during the weak, six-month stretch and then rotated into cyclical sectors for the other six months saw increased growth, lower volatility and beat their benchmark, the note said. This relationship holds against different market cap levels and in equal-weight portfolios. Even with the bear market in the first quarter, the defensive sectors may still be the best bet for the next six months. Since 1990, consumer staples and health care have outperformed cyclical sectors in four of six May-to-October stretches that followed bear markets. "Like white-water rafting, sometimes it's best to let the market take you where it wants to go. History shows that investing in cyclical sectors from November through April, and then gravitating toward defensive groups from May through October, has made the experience both thrilling and rewarding," Stovall said.

Flags fly at full staff outside the NYSE on April 09, 2020 in New York City.

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(This story is for CNBC Pro subscribers only).

The calendar will soon turn to what is historically one of the worst periods for stocks, but CFRA said in a note to clients that investors should rotate and not sell.

The old Wall Street saying to "sell in May" has some support in historical data, but there are a few sectors that could be smart buys, CFRA chief investment strategist Sam Stovall said in the note.