Why "Sell in May and Go Away" isn't the right approach

Key takeaways

• As we know, markets this year have been robust. In fact, despite a near 10% correction in March, and ongoing uncertainty around the Iran war and oil prices, stocks are back near all-time highs.
• There is an old adage that says, "Sell in May and go away." Should investors take that approach this year? Overall, a lot of good news is reflected in markets, and we may see a period of sideways movement or consolidation of recent gains.
• Nonetheless, we don't yet see the conditions in place for a deep or prolonged downturn in markets – and as we know from history, time in the markets is a better strategy than trying to time yourself in and out of markets.
• While we don't recommend selling investments, we do suggest reviewing your investment strategy: To help ensure you are well diversified and seeking opportunities if market volatility does arise, in accordance with your goals and risk tolerance.

Where does "sell in May" come from?

While the "sell in May" adage doesn't hold every year, there is historical evidence that suggests that the May through September period has lower returns on average than the October through April period. As per the chart below, our analysis indicates that since 1980, average returns in the May-October period have been about 4.6%, while returns in the November-April timeframe were about 8.4% on average.

This year in particular we have seen a strong rally in markets since the March lows, and we think the odds of a pause or a period of sideways movement in stock markets could be rising as we head into the summer months.

Why are markets near highs heading into May this year?

Investors may be wondering why stock markets have been rising, despite higher oil prices, elevated inflation, and geopolitical uncertainty. The S&P 500, a broad market index, is up over 8% this year and up a stellar 17% since the March 30 lows.

What is driving these gains? We can point to two key factors. First, there is some optimism that oil prices may moderate over time.

In fact, the WTI oil futures curve is pointing to oil prices back in the low $80 levels by year-end. This may be driven by hope that there is some resolution to the ongoing war in Iran; keep in mind, however, that a prolonged war is not a good outcome for either side, especially as the U.S. is headed toward midterm elections in November, and markets are aware of this as well.

And secondly, and perhaps more important, we have seen economic and earnings fundamentals hold up well: The labor market has been resilient, consumers continue to spend, and earnings growth forecasts have moved higher.

In fact, if we take a look at this chart, we can see that 2026 earnings growth has been revised higher, even through the Iran crisis period, which has been supportive of equities. This has been driven by tech/AI and semiconductor earnings, as well as better energy and materials earnings.

What could spark a pause in the rally?

While the underlying fundamentals of the U.S. economy remain solid, there are tail risks to keep in mind. If, for example, oil prices remain elevated, and inflation remains stubborn, consumers will continue to face cost pressures, and the Federal Reserve will likely have a tough time making the case for further rate cuts.

Nonetheless, the U.S. economy has held up quite well, even with elevated gas prices and the fed funds rate at around 3.75% -- and may continue to do so. This could be in part because fiscal programs like higher tax returns this year have helped offset rising costs. In addition, middle- and upper-income consumers have benefited from the wealth effect of rising stock-market prices and some home-price appreciation.

We think the bigger concern for investors, however, would likely be if the Federal Reserve decides to raise interest rates, which could put pressure on both consumers and corporations. However, we continue to believe that the bar for raising rates remains high – and that the more likely outcome is that the Federal Reserve is on hold for the foreseeable future.

Is now a time to sell?

So the question many investors may have now is: Should we sell after this nice rally? We would highlight three key reasons why we think trying to time a market top is not the right approach:

1. First, we don't see a fundamental crack in the story. We know that market downturns tend to occur if there is a recession on the horizon, or the Federal Reserve is raising interest rates – neither of which we see, for now.
2. Second, we also know market timing is not a great strategy. Investors are not great at calling market tops or bottoms, and if you do sell, you are required to make two market-timing calls: when to sell and then when to buy back in, which is not a strategy we recommend.
3. And finally, keep in mind that we are also in a midterm election year. Historically, stock markets can move sideways ahead of midterm elections, but tend to rally after the November 7 election date passes, as some uncertainty has been lifted.

What to do instead?

Overall, we don't believe in the "Sell in May and Go Away" approach, especially as fundamentals remain solid, and we could see some post-election seasonality.

So what do we suggest instead? Certainly, we recommend staying invested, in line with your personal risk tolerance and return goals; staying diversified, across market-caps and regions; and staying alert – looking for quality investments at potentially better prices.

Mona Mahajan
Senior Investment Strategist

Sources for all data in commentary: Bloomberg and FactSet.

The Week Ahead

Important economic data and events for the week ahead include the Conference Board's Leading Economic Indicators and several readings on the housing market.