Investors conditioned to backing out of the market as the summer looms might want to rethink their positions after what happened in 2009.
Those adhering to the strategy of "sell in May and go away" until after the summer got crushed last year, missing a 17 percent gain in the Standard & Poor's 500 en route to a relentless rally that continues into the beginning of the new month.
While calls persist that the market has gotten overvalued, many advisors see themselves hanging in—if with a bit more conservative strategy.
"We're going to stick around for a while even though technically we see the market as overextended," says Emily Sanders, president of Sanders Financial Management in Atlanta. "The equity market is still involved in a melt-up situation and as such we're not going to take our clients' exposure away."
Sell-in-May is a strategy that has had mixed results over the years.
It is true that the market as a whole underperforms in the May-October time frame as compared to November-April.
Since 1928, the S&P has gained 1.9 percent in May-October versus 5.1 percent the rest of the year. In the past 10 years the trend is a bit more pronounced with the disparity being 1.4 percent to 6.4 percent respectively.
But investors who have employed the strategy with the entire index have missed market trends that benefit investors who change their allocation into particular sectors rather than just pulling back into money markets or other safe-haven assets.
Investors who invested in the entire S&P index from November until April and then split their portfolios equally between consumer staples and health care from May to October realized a compound annual return of 10.8 percent per year for the past 20 years, according to recent research from S&P's chief investment strategist Sam Stovall.
Those who played the entire S&P for the 20-year period would have realized compound gains of 6.7 percent.
"[S]hould you believe this bull market has come too far, too fast since the March 9, 2009 low, and believe a challenging period lies ahead for stocks, you may want to consider this semi-annual rotation strategy, remembering all the while that what worked in the past may not continue to work in the future," Stovall wrote.
Indeed, there remains a level of trepidation after the violent 13-month rally that has strategists looking for specific areas to play rather than expectations of a broad market run-up.
"I don't think I would sell in May and go away, but it could be a little rocky here," says Beth Larson, principal at Evermay Wealth Management in Washington, D.C.
Larson says consumer discretionary , with its fat 19 percent gain this year, may be a bit overheated. Retailers (consumer staples) and financial service companies could be better places to look.
"The biggest danger for retail investors is they buy and sell at the wrong times. It's the natural process of fear and greed, a natural human reaction," she says. "If you were underweight in stocks for your long-term goals—and everybody needs stocks exposure in their portfolio—this is a time to move in."
Sanders likewise is looking to rotate into sectors that weren't as hot as some of the big gainers, leading her to health care and technology . The health care sector is about flat for the year while technology is up 5.8 percent.
Options employing both long and short strategies provide investors with a way to participate in the market while protecting themselves against losses.
"We're not going to walk away from the market now, but we are starting to employ covered calls as an income-generating or hedging tool," Sanders says. "The options premiums aren't really great in this market because the volatility is so low, but we're still on the lookout for good arbitrage opportunities."
Investors, then, would do well to avoid a follow-the-herd mentality either in or out of the market, advisors say.
Michael Kresh, president of M.D. Kresh Financial Financial Services in Islandia, N.Y., said he's been trimming some positions to get cash for his clients—mostly retirees—but is not making any wholesale moves out of the market.
"We haven't had a 10 percent correction since this bull run started," Kresh says. "It's likely that it's going to occur, but I can't tell anybody when. If we get a correction and the fundamentals are still strong, we would just buy more aggressively."