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Historical Sanity Check: Sell In May Since 1928!

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    May 2, 2013

    On this first day of May, in homage to the Sell in May soothsayers (and in the spirit of market trivia), let’s survey the behavior of the months in the S&P Composite since 1928. The Composite is a spliced index of the earlier S&P 90 with the S&P 500. Because of its greater breadth, I prefer it to the Dow for historic research of this sort.

    Market lore is full of monthly associations: The January Effect, Sell in May and Go Away, Summer Rallies, the September Slump, Manic-Depressive October, December Rallies, etc.

    The first chart shows the average monthly gains/losses, excluding dividends, since 1928 for all twelve months. May is one of the three months with a negative average. Incidentally, the monthly average of all months lumped together is 0.59%. So May has underperformed the mean by 0.73%.



    Dividing the Timeline

    Has May consistently been a poor performer? The next three charts divvy up our 85-year period into three parts: 1928-1949, 1950-1981, and 1982-present. The rationale is that the first chart includes the Crash of 1929, Great Depression, WWII, and ends around the time of the secular market bottom in 1949. The second chart covers the cycle from the beginnings of the post-war rally through the Decade of Stagflation and market bottom in 1982. The third chart begins with the great Boomer market that followed and runs to the present.

    Of course we could slice and dice the decades any number of ways, but an overview and three subsets (a four-chart total) about maxes out my energy and interest in this topic.

    May has been a performance laggard in two of the three timeframes and the worst performer in one of the three (1950-1981).

    Without further ado, I’ll let the next three charts speak for themselves.







    Lest the charts above give the false impression that May is a consistently poor performer, let’s close with a distribution of performance over the past 85 years.



    Across the entire 85-year timeframe, May has an average of -0.14%. But if we exclude the three negative outliers, the average jumps to 0.59%, which is spot on the overall monthly mean. Pretty amazing!

    Let’s hope May 2013 behaves more like it did in 1933 and not like one of those naughty negative outliers (or any of the red markers, for that matter).

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.