Wednesday, April 30, 2025

How to Trade a 'Sell in May and Go Away' Signal


Plus, a list of names that tend to buck this stock market maxim
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How to Trade a 'Sell in May and Go Away' Signal

Even if you are not an avid trader, you have likely heard the stock market maxim "sell in May and go away." The data in the table below shows where this saying comes from. Over the past 40 years, May through October has been the worst six-month timeframe for the S&P 500 Index (SPX). The index has averaged a return of 2.45% from May through October, compared to 7.29% for the other six months out of the year.


Despite 73% of the returns being positive, the underperformance is mainly due to limited upside and more downside when compared to the other six months of the year. With May about to kick off, now is a good time to look at how the next six months usually perform when we've just had six months of poor returns. I'll also list some stocks that usually buck this trend, as well as others that are best to avoid.

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Momentum, Not Reversion 


I thought that if the market was down in the preceding six months heading into May, the SPX might tend to bounce back in the next six months. Instead, the prior six months seems to create momentum for the next six months. Since the end of October, the SPX shed to 3%. When the index has been down over the prior six months, the next May through October has averaged a negative return of 2.6%, with just half of the returns positive.

The table below shows each time the SPX was down in the six months leading into May. The last time was in 2022, and the SPX fell 6.3% over the next six months. On a hopeful note, each of the three times before that, the index was positive, with two of those times gaining over 10%.

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Notable Stocks for May Through October 

As promised, here's a list of stocks that tend to perform well over the next six months, despite the seasonality headwinds. Cintas (CTAS) is the only stock to beat the SPX in each of the last 10 years and be positive each time as well. Big Tech megacaps Apple (AAPL), Nvidia (NVDA), Alphabet (GOOGL), and Microsoft (MSFT) are also on this list.

Notable Stocks for May Through October 

As promised, here's a list of stocks that tend to perform well over the next six months, despite the seasonality headwinds. Cintas (CTAS) is the only stock to beat the SPX in each of the last 10 years and be positive each time as well. Big Tech megacaps Apple (AAPL), Nvidia (NVDA), Alphabet (GOOGL), and Microsoft (MSFT) are also on this list.

Finally, this next list of stocks features those that have been the least likely to beat the SPX, even during the worst six months of the year for the index

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