Sell in May and Go Away—Not Quite

This summer has produced a nice rally, and LPL says that portends a good run the rest of the year.

Whatever happened to the advice “sell in May and go away?” If you did that this summer, your equity investments missed a grand opportunity. And odds are that the remainder of the year should be strong, too.

The Standard & Poor’s 500 is a hair’s breadth away from reaching its January 26 record of 2,854. It took small dips on Wednesday and Thursday following a strong summer rally.

Yes, things for much of this year were meh in the market. Since the S&P hit bottom in early February after its 10% winter correction, the index has had a fitful recovery. It finally got some steam in, of all months, May. From the bottom February 8, it has advanced 10.5%.

Here’s where the odds come in, which could give us a buoyant rest of 2018. “Sell in May has many bears pulling their hair out in frustration,” noted Ryan Detrick, senior market strategist for LPL Financial. “Here’s the catch: History says when ‘Sell in May’ doesn’t work right away, the rest of the year can be quite strong.” 

If April, May, June, and July are all positive, according to Detrick, then the remaining five months will be up an average 10%. He crunched the numbers back through 1954. This past April, when the market slid again, nevertheless was a positive month. The next three months of 2018 logged advances, as well.

In recent years, when April through July was up, the August-December bounce hasn’t been that pronounced. But a bounce did happen. In 2017, August through December climbed 8.2%, and 2016’s comparable period increased 3%. The previous time there was an April-July rise, 2009, the last five months had a headier increase, 12.9%.

The common wisdom sometimes can be wrong in delightful ways.

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