“Sell in May and go away” is strategy that some investors
and traders are likely contemplating right now.
The adage is based on the historically weaker performance of stocks
during the May through October time period. Adherents shift from stocks to cash
at the beginning of May and then invest back into stocks at the start of
November.
Historical performance shows there are best and worst
six-month periods for stocks. Jeff Hirsch at the Stock Trader’s Almanac
calculates that the Dow Jones industrial average has an average return of just
0.3% during the worst six-month period (May through October) since 1950.
Conversely, during the best six months (November through
April), the Dow has an average gain of 7.5%. Sam Stovall at S&P Capital IQ
says the S&P 500 has risen by a mere 1.2% during the average worst
six-month period, while rising 6.9% during the average best six-month period.
(Sam’s numbers go back to 1945.)
Certainly, last year made selling at the end of the April
seem like a prudent decision. From the end of April 2011 to the end of October
2011, the Dow lost 6.7%. Using the October 4, 2011, intraday low as the
endpoint, the drop worsened to 19.1%...
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