The season for Wall Street's time-honored "Sell in May" strategy has arrived, but analysts suggest the old playbook may not work this year. Big Tech firms such as Google and Apple have demonstrated robust profitability in their latest earnings, fueling a historic rally led by technology stocks.
Reuters reported Tuesday that a $10,000 investment in the Standard & Poor's 500 made in May 2016 would have grown to $34,297.57, while the same amount following the Sell in May strategy would have reached only $18,148.28.
The result runs counter to the typical expectations for the Sell in May approach, which involves cashing out of stocks in May and buying back in six months later in November. The convention took hold over decades on the premise that trading volumes thin out during the long summer vacation period and major catalysts are scarce.
Historically, the S&P 500's performance from May to November has been weak. According to Sam Stovall, an analyst at market research firm CFRA, the S&P 500 has posted an average gain of just 2% between April 30 and October 31 since 1945, compared with nearly 7% between October 31 and the following April 30.
Yet over the past decade, investors who followed the Sell in May strategy have missed out on gains. According to JPMorgan's trading desk, the S&P 500's average monthly return over the last 10 years was 1.5% in May, 1.9% in June and 3.4% in July. August (0.9%) and October (0.7%) came in below 1% but still posted gains. Only September saw a decline, at 0.5%.
This year in particular, despite the prolonged Iran war, Big Tech earnings drove the S&P 500 and the tech-heavy Nasdaq to their biggest monthly gains in six years last month. Apple, which had been sidelined in the artificial intelligence (AI) race, posted record highs in iPhone 17 demand and its services segment, with revenue reaching $111.2 billion and January-March sales up 17% year-on-year. Over the same period, Google's cloud business revenue surged 63%, proving itself as a "money-making AI player."
Asset manager Fidelity, citing FactSet data showing that nine of 11 sectors raised their first-quarter earnings outlooks, pointed to strong earnings and a solid labor market as reasons not to sell in May. Bank of America (BofA) said in a recent letter to investors that weakness from May to October has mostly been concentrated in the latter half, and stronger gains can be expected during the summer, adding that it will ignore the "sell in May and go away" adage this year.
Still, some caution that turmoil from a potential change in the Federal Reserve chair, high inflation and the midterm elections could weigh on equities, warranting a careful approach.
