So, let’s get straight to the point, because May has just started and the same discussion is already heating up. On one hand, last Friday the S&P 500 closed at 7,230 points and the Nasdaq hit a new all-time high at 25,114. On the other hand, everywhere you look you hear the same phrase: “Sell in May and go away.” Sell now, go enjoy your vacation, come back in September.
And every year, thousands of investors fall into this trap. This year, with markets at record highs and geopolitics in full swing, the temptation is even stronger.
“Sell in May and go away.” It sounds like ancient investing wisdom. In reality, it has British roots, from the time when bankers in London would leave for summer holidays and the market would go into “sleep mode” until September.
Put simply, the logic was this: fewer participants in the market = lower volume = weaker returns. So, exit in May and re-enter in autumn.
Does it sound logical? Maybe. Back then. Today, markets operate almost nonstop, with algorithms, automated systems, and trillions flowing through ETFs that buy continuously. The seasonality that existed back then has mostly disappeared.
“So why are we still talking about it?”
This is where things get even more interesting.
JPMorgan analyzed the data from the past decade. What did they find? The S&P 500 returns on average +1.5% in May. +1.9% in June. And now pay attention. +3.4% in July.
What does that mean? That anyone who sold in May to avoid the “summer slowdown”... missed three of the most profitable months of the year.
But there’s more. Deutsche Bank ran the same analysis for Europe, using the STOXX Europe 600. In 25 out of the 39 years examined, the “sell in May” strategy failed. Simply holding your positions without doing anything would have delivered better returns.
And here comes the statement that sums it all up. Paul Ciana, head technical analyst at Bank of America, said that “this year will once again disprove the theory.”
The truth is, there is a big “but” in all of this.
Because this year there are some factors that justify concern. Let’s go through them.
First. The CAPE ratio, the metric that measures whether stocks are expensive relative to earnings, is around 39.42. What does that mean? That we are at levels seen only three times in history: during the Dot-Com bubble, the 2008–2009 crisis, and the pandemic.
Second. Margin debt, meaning borrowed money used by investors to buy stocks, is at historical highs.
And third. Goldman Sachs issued a warning. They clearly stated that the number one risk for the U.S. economy right now is a correction in equities.
So yes, there are valid concerns. But does anyone know when a correction will happen? No. And that’s the whole point.
Let’s say you decide to follow “sell in May.” Fine. You sell. You take your money and sit on the sidelines. Now what? When do you get back in?
That’s the question no one ever answers. Because market timing isn’t one decision. It’s two. When you exit and when you re-enter. And you need to get both right to come out ahead.
Is that possible? Maybe once or twice. But every year, for 30 or 40 years? It’s not. The data is crystal clear.
If you had sold last May expecting a correction, you would have missed an entire upward move. And now you’d be staring at the Nasdaq at 25,000 points asking, “when will it finally drop so I can get back in?”
