Tags: May | worst | S&P 500 | months

Sell in May? Not if You Own These Sectors

By    |   Friday, 10 April 2015 08:11 AM

Stock market investors are always looking ahead. In April they face the difficult decision of whether or not to follow the well-known advice to "sell in May and go away."

Details of the study vary, but the general idea is that the six months ending in April outperform the other six months of the year. Depending on when the study starts, we find that more than 90 percent of the market's gains come in the best six months and the largest bear markets fall in the rest of the year. For example, in one study, holding the S&P 500 during the best six months delivered an average annual gain of 6.8 percent. Investing in the other six months produced an average gain of just 1.1 percent a year.

Most of the underperformance in the worst six months is due to years like 2008 when the S&P 500 lost nearly 30 percent in that time frame. In many years, the gains in the worst six months actually look pretty good. About 30 percent of the time the six months from May through October turned out to be the best time to hold stocks.

According to a study done by Standard & Poor's, rather than moving to cash, investors would have outperformed the market by investing in consumer staples and healthcare stocks from May to October.

To use exchange-traded funds (ETFs) to implement this strategy, you could buy Consumer Staples Select Sector SPDR ETF (XLP) and Health Care Select Sector SPDR ETF (XLV). Other ETFs or mutual funds could also be used. Buying the top-performing individual stocks in each sector with a relative strength strategy should do even better.

But selling in May and going away will work only if we have an extreme bear market like we saw in 2008. The odds of that happening are low for now.

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MichaelCarr
Stock market investors are always looking ahead. In April they face the difficult decision of whether or not to follow the well-known advice to "sell in May and go away."
May, worst, S&P 500, months
308
2015-11-10
Friday, 10 April 2015 08:11 AM
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