The old adage “Sell in May and go away” doesn’t hold true for Dalal Street, according to recent data. In the past decade, the Nifty index has delivered positive returns in six of the last ten Mays, averaging a 1.5% gain. This trend suggests that May is not necessarily a month for exits as the adage implies but could be an opportune time for investors.
Wall Street shows a similar pattern. The S&P 500 has ended May in the green 31 times over the past 40 years, further debunking the myth. This anomaly highlights the importance of data-driven investment strategies over following market folklore.
The resilience shown by both Nifty and S&P 500 indices in May demonstrates that investors might benefit more from analyzing market trends and maintaining diversified portfolios rather than reacting to long-held market clichés. Callum Thomas, head of research for Top Down Charts, argues that the old adage oversimplifies market behavior. While it is true that historically, markets have delivered weaker and more volatile returns during the May through October timeframe compared to other periods, Thomas emphasizes that this pattern is more nuanced.
May investment insights beyond folklore
Thomas points out that this seasonal trend is more pronounced during bear markets. “During bear markets, the odds of losses spike during the May through October period,” Thomas explained.
However, in bull markets, this timeframe can still produce gains, albeit with more fluctuations. Economic data and investor sentiment tend to weaken from May to October, according to Thomas. This can lead to a seasonal dip, with defensive assets like treasuries and gold often outperforming during this period.
Thomas cautions that averages can be misleading and the performance gap between the May-October and November-April periods has been shrinking in recent years. He advises investors to consider seasonality as part of their strategy, but not to rely on it as a sole investment thesis. Investing based on outdated myths such as “Sell in May and go away” can lead to missed opportunities.
Instead, a closer examination of historical performance reveals that May often holds potential gains for those who remain engaged in the market.
