Financial advisors shun ‘sell in May’ — but still make the case for selling

History is on the side of sitting on the sidelines from May through October, but advisors say investing is not that simple.

Despite a long history of data illustrating the validity of selling out of the stock market in May and going away until November, financial advisors aren’t biting.

“That’s day trading at best, and speculating at worst,” said Garrett Sorensen, financial advisor at Marcum Wealth.

“Investors should have a strategy that leaves them invested even when there is potential for turmoil in the markets,” he said.

Possible headwinds such as the nasty debt ceiling debate in Washington and the risk of inflation morphing into stagflation aside, some advisors continue to preach from the buy-and-hold bible.

“History shows us that markets grow over the long term. If investors are concerned about losing money they need to spend in the short term, that money should probably be in lower-risk asset classes like cash or short-term bonds,” said Joey Loss, founder of Flow Financial.

Paul Schatz, president of Heritage Financial, describes the stock market cliché about selling in May as “basically nonsense.”

“It’s one of the quaint adages that doesn’t work in real time today,” Schatz said. “The six-month period from May through October isn’t a bearish period. The market is still up, but at a much lower degree than November through April.”

As loopy as it might sound to place investment bets on specific calendar cycles, the track record can’t be denied.

Dating back to 1950, the worst six-month period for the S&P 500 Index has been the period from May through October, which produced an average return of 1.7%.

That compares to a 6.9% average return for the six months from April through November.

The origins of selling in May and going away date to the days of summer slowdowns related to vacations and holidays. But any modern-day patterns could be part of a self-fulfilling prophecy, said Adam Turnquist, chief technical strategist at LPL.

“It comes down to math and marketing, and Wall Street is good at both,” he said.

Beyond just the raw average market performance over six-month blocks of time, Turnquist said market volatility has historically been higher during the summer months, with September averaging the highest volatility.

Average returns broken down by month dating back to 1950 show September with an average loss of 70 basis points, followed by June and August, which are flat.

May’s average return over the period is 20 basis points. October’s average gain is 1%, and July is at 1.3%.

Max Wasserman, founder and senior portfolio manager at Miramar Capital, shuns the sell-in-May strategy as timing the market. But that doesn’t mean he doesn’t see the logic of taking some profits when the time is right.

“It’s not like the whole market is overheated, but if we were profit-takers, we’d look at some of the higher risk categories like technology,” he said, citing a 15% gain this year by the tech-heavy Nasdaq Composite Index.

Scott Bishop, executive director of wealth solutions at Avidian Wealth Solutions, is also looking past the “rule of thumb” to some strategic portfolio adjustments for certain clients.

“Especially for those that have a stressed financial plan near or in retirement, I think now would be a good time to review their allocation and possibly shift a bit to bonds and-or into thoughtful alternative investments,” Bishop said. “The markets will be choppy and with Fed policy unsure, and with the banking crisis in our face and many global geopolitical risks, the market is priced to perfection in my opinion, thus we will have a choppy market cycle going forward.”

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