Many investors and members of the financial media have been asking if it will be prudent to heed the old Wall Street adage to “sell in May and go away,” reports chief investment strategist Sam Stovall in CFRA Research's flagship newsletter, The Outlook.
Some say yes, in anticipation of pressure on stock prices from sticky inflation and delayed rate cuts that will likely lead to heightened volatility and could serve as a catalyst for correction.
Others say no, since year-over-year inflation readings continue to decline, a recession has been avoided, and the Fed is still likely to cut rates at least twice this year – once in September and again in December. In addition, election years saw improved S&P 500 price gains and frequencies of advance (FoA) from May through October (M-O).
The “sell in May” adage reminds investors that since 1945, the average M-O price increase for the S&P 500 was only 1.6%, along with a 65% FoA, versus an average gain of 6.9% for November through April (N-A) and a 76% FoA.
What’s more, during election years, while the market gained 5.3% in the N-A period and registered a 75% FoA, it gained 2.5% in the M-O period and posted a 79% FoA, implying that it continued to be wise to “rotate, not retreat.”
So where does history say one should go? Since 1990, the sector leaders from M-O were consumer staples, health care, and information technology, which gained from 3.7% to 5.1%, while energy, real estate, and materials lagged.
Digging a bit deeper, we see that 67% of the sub-industries in the S&P 500 that have been in existence for all 30 years racked up positive returns during the M-O periods, led by biotechnology, footwear, and systems software, while the deepest declines were recorded by the home furnishings, paper & plastic packaging products, and steel groups.
Representative companies from this list of best S&P 500 sub-industries are: ServiceNow Inc. (NOW), Regeneron Pharmaceuticals Inc. (REGN), NIKE Inc. (NKE), Archer-Daniels-Midland Company (ADM), Broadcom Inc. (AVGO), Philip Morris International Inc. (PM), Colgate-Palmolive Company (CL), and Molina Healthcare Inc. (MOH).
