'Sell in May and Go Away' Will the Seasonality Hold True This Year?

The longstanding stock market saying "sell in May and go away" advises investors to sell their stocks in May and re-enter the market in November. This strategy is rooted in the historical trend of markets performing worse in the summer months compared to the winter in the northern hemisphere.

In most years, selling in May and taking a break from the market doesn't usually make much sense. However, in 2025, with Trump's tariff war bringing new developments daily, the market volatility is at an all-time high. It seems more tempting than ever to sell stocks and move into bonds, GICs (guaranteed investment certificates), cash, or cash equivalents.

What Does History Tell Us?

A 2023 study conducted by Manulife Investment Management assessed the efficacy of the "Sell in May and go away" strategy. The research compared the returns of a hypothetical investor who followed this seasonal strategy with those of a buy-and-hold investor over a span of 50 years.

The results showed that, in general, the buy-and-hold approach outperformed the seasonal strategy. This suggests that, although the seasonal pattern is observable, it may not be beneficial for investors to time the market based on this adage.

For example, an investment strategy that involved being 100% invested in 90-day U.S. Treasury bills between May 1 and October 31, and fully invested in the $S&P 500(.SPX)$   during the remaining six months of the year, yielded an 8.7% annualized return over a 30-year period ending on March 31. In contrast, a buy-and-hold strategy in an S&P 500 index fund achieved a 10.4% annualized gain. While the seasonal strategy was less risky than the buy-and-hold approach, it underperformed on a risk-adjusted basis as well.

In deciding whether to adopt the "sell in May" strategy in 2025, investors should weigh historical trends against current market dynamics. Although the saying has historically held some truth, its relevance has waned in recent times, with a few exceptions during bear markets.

Key Concerns in Today's Stock Market

With the $S&P 500 Index (.SPX.US)$ and $Nasdaq (NDAQ.US)$ posting weekly gains of 4.6% and 6.5% respectively last week, April's monthly return is likely to turn positive.

However, fundamental investors might have additional concerns regarding market liquidity, especially in light of the US-induced tariff trade war with its global trading partners and the subsequent crisis in the US bond market. They may recall that just a few years ago, three US banks—Silicon Valley Bank, Signature Bank, and First Republic Bank—failed within a span of less than two months, with the latter marking the second-largest bank failure in US history.

As we noted in the article 'Is It Time to Buy U.S. Treasuries on the Dip?', an important factor behind the crisis in the US Treasury market is the collapse of high-leverage trades. Hedge funds had bought Treasury bonds while shorting Treasury futures of the same duration to profit from the basis spread. After the implementation of the tariff policy, a "trust crisis" in the dollar and policy uncertainty from the Trump administration increased the risk-aversion of foreign investors, leading to widespread selling of U.S. Treasuries. When Treasury rates surged in the short term, hedge funds participating in basis trades incurred losses on their long positions in Treasury bonds, requiring them to post additional margin. This necessitated further selling of Treasuries, ultimately causing a spiral decline.

The potential for reduced liquidity in the face of heightened market uncertainty has adversely affected investor sentiment, causing a slowing US labour market and increased the risk of a global recession, and may have negatively impacted U.S. earnings, particularly in terms of forward guidance. These factors could have further negative implications for equity markets, potentially lending support to the "sell in May" strategy.

Would This Time Be Different?

Given ongoing concerns about a potential downturn in hard data—consistent with Goldman Sachs economists' expectations for continued softness in survey data before hard data weakens in mid-to-late summer—and/or a downturn in trade talks, most investors aren't ready to declare an 'all clear' just yet.

On the fundamental front, early indicators during the TMT earnings season suggest that trends across most categories are stronger than anticipated. This supports the notion that investor sentiment has shifted more rapidly to the downside compared to actual corporate and consumer behavior. This discrepancy has sparked a debate on whether companies and consumers "haven't seen it yet" or if there's a "pull forward" effect, where positive earnings surprises ("beats") are being rewarded less than historical patterns would suggest. For instance, Alphabet's stock rose by only about 1.5% on Friday despite a clean beat.

As we head into a busier month packed with major tech earnings reports (including $Apple(AAPL)$   , $Amazon.com(AMZN)$   , $Microsoft(MSFT)$  , $Meta Platforms, Inc.(META)$   , and several smaller and mid-cap companies), and with Nvidia's quarterly results due in late May, it's worth questioning whether the early TMT results have been artificially inflated. This strength might be due to a particularly strong group of companies reporting (such as $SAP SE (SAP.US)$ , $ServiceNow (NOW.US)$ , $Netflix (NFLX.US)$ , $Alphabet-C (GOOG.US)$ , and $Taiwan Semiconductor (TSM.US)$ , which are among the highest quality) and the earlier-than-usual earnings release dates. The "they haven't seen it yet" effect tends to diminish as time passes.

The U.S. Stock market was becoming overly reliant on a small number of tech companies during the AI-driven stock rally. Traders cautioned that the boost these companies provided could quickly turn into a significant drag. According to Dow Jones Market Data, this group accounted for about 36% of the S&P 500's market value at its peak in December. The S&P 500's total return, including dividends, has declined 5.7% this year. Without the contributions of the Magnificent Seven, the decline would be 1.2%.

However, Michael Hartnett of Bank of America, who dubbed the Magnificent Seven 'Lagnificent' in January, anticipates that the group's competitive advantages and the U.S.'s enduring financial dominance will ultimately attract investors back.

"At the end of the day, nobody wants to own bonds,” Hartnett said. “There's only so much gold and European equities or emerging markets. And so it’s almost by default, you go back to the U.S. equity market.”

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