Stock market wisdom Sell in May and go away - A controversial strategy

Stock market wisdom Sell in May and go away - A controversial strategy

The stock market adage “Sell in May and go away – but remember to come back in September” seems temptingly simple at first glance, as it encourages investors to sell in May and return in September. However, based on research by Deutsche Bank strategist Maximilian Uleer and his team, it appears that this strategy is not always successful. An analysis of the Stoxx Europe 600 Net Total Return between September and May found that in 23 out of 37 years, investors using this tactic performed worse than those who simply held on to their stocks.

The statistical analysis suggests that the better performance of the “Sell in May” strategy can be attributed to exceptionally good stock market years such as 1989, 2001 and 2002. Excluding these years would already change the result. Additionally, the wisdom does not easily apply to the US market, as investing in the S&P 500 since 1973 would have yielded better results than strictly following the traditional rule.

Despite the current high inflation in the United States, the Fed is still hesitant to raise interest rates. Investors therefore remain uncertain as to whether and when interest rate cuts could actually occur. The Eurozone is also showing signs of inflation, but price pressures are limiting the European Central Bank's potential interest rate cuts. Experts suggest a June cut is likely, but further action appears unlikely.

The interest rate uncertainties have led the European stock markets into a slight lack of direction this week. The DAX closed just below the 18,000 point mark, while the Euro Stoxx 50 fell slightly on a weekly basis. Given these market uncertainties, it might make more sense to wait for interest rate developments before selling than to rely solely on historical stock market wisdom.