Bank of America strategists Paul Ciana and Jonathan Hartley have re-examined the long-standing market adage to "sell in May and go away" and conclude that the maxim oversimplifies seasonal behavior in U.S. equities. Their review of S&P 500 performance reaching back to 1928 confirms that the May-October six-month span produces lower average returns than the November-April period, but the weakness is not evenly distributed through those months.
Using the full S&P 500 record since 1928, the strategists report the May-October interval returns an average of 2.4%, versus 5.2% for November-April. However, they emphasize that the comparative underperformance of May-October is "back-end loaded to the Aug-Oct period." As they put it, "Maybe the adage should be 'sell in August and buy Halloween' for the best 6-month stretch."
Breaking the seasonal data into three-month segments, BofA finds June-August is actually the second strongest three-month window of the year with an average return of 3.3%. By contrast, August-October is the weakest three-month period, registering an average return essentially flat at -0.02%. On that basis, the strategists argue a more nuanced approach would be to purchase equities in May and consider reducing exposure in July or August instead of exiting positions at the start of May.
The bank's analysis extends beyond the broad market to major indices. May has historically been positive for the Nasdaq 100, which averages a gain of 2.19% in the month and has risen approximately 68% of the time. The Russell 2000 has also tended to perform well in May, advancing about 64% of the time for an average gain of 1.33%.
Both the Nasdaq 100 and the Russell 2000 recorded gains in May 2018, which the strategists note was year two of President Trump’s first term. When the team isolates returns for year two of U.S. presidential cycles more broadly, the pattern changes: the Nasdaq 100 averaged only a 0.53% gain in those year-two periods and rose about half the time, while the Russell 2000 was down in 64% of those year-two instances with an average decline of 1%.
Bank of America also highlights seasonal behavior in foreign exchange. May is typically supportive for the U.S. dollar, with the greenback showing consistent strength against the British pound, Brazilian real, Chilean peso, South African rand, and Indian rupee. That pattern, the strategists say, also held during year two of the presidential cycle and in May 2018.
Overall, the strategists advise that investors who react to the calendar by exiting equities at the start of May may be misreading the data. Instead, the historical record suggests that seasonality is more complex, with the notable risk concentrated later in the summer and into early autumn.
Bottom line: The classic "sell in May" prescription overlooks that seasonal S&P 500 weakness is concentrated in August-October, while June-August can be comparatively strong. A timing-focused approach that trims exposure in July or August could better align with historical patterns, and May has generally been supportive for the Nasdaq 100, Russell 2000, and the U.S. dollar versus several currencies.