“Sell in May and go away”

summer moneyA popular quote on wallstreet reveals a time-proven strategy

The US market as any, typically has cycles of strength and weakness. The summertime blues is one of them. Many investors advice to stay away from US market seasonal weaknesses but hiding behind bonds or just waiting is not an option for the most of shareholders.

Historical data points out a strategy of holding to stocks which outperformed in this period. As of right now a good hint could be focusing on Utilities, Staple Stocks and Health care. Of course this is a long-only investment which is a way to escape from the possible summer blues.

Sector May – October
% Change % F.O.**
Utilities 7.8 60
Telecom Services 7.7 80
Health Care 7.3 80
Info Tech 6.5 70
Financials 5.1 50
Consumer Staples 5.0 70
Consumer Discretionary 4.7 60
Energy 2.7 30
Industrials 2.3 20
Materials -1.2 20
S&P 500 4.5

* Average price return since 1990

** Frequency of outperformance

Source:S&P Capital IQ


For example a 50-50 mix of Healthcare and Staples stock (food beverages, household goods, etc) brings an 6.2% average gain around 70% of the time.According to Ned Davis Research staples sector outperformed during May-October period in household products, soft drinks,packaged foods. They beat the market two thirds of the time with an average out-performance of 6.3 percentage points.

On the other side Jeff Hirsch – a chief market strategist and editor advises “Take profits, cut losers, tighten up stops, then take some bond positions”

Which one is going to be? Thats up to your judgment.

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