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Don’t make fun of ‘sell in May and go away’ — it just worked

Scott Gamm

Who said stock market adages have no value?

In the days leading up to the start of May, investors, pundits and even yours truly, pondered the ‘sell in May and go away’ theme - the notion that market performance is weaker in months May and beyond. But the S&P 500 (^GSPC) hit an intraday record high on May 1 of 2,954, making the adage all the more difficult to digest.

Fast forward a month later, and the S&P 500 fell over 6% in May as trade tensions between the U.S. and China and the U.S. and Mexico reached fever pitch. This was the worst May for stocks since 2010.

“The old 'sell in May' adage worked last month for the first time in seven years,” wrote analysts from Bank of America Merrill Lynch, led by equity and quant strategist Savita Subramanian, in a note to clients. “Energy (-12%) was the worst performing sector, as WTI declined 16%, while Tech (-9%) was the second worst performing sector.”

Perhaps the ‘go away’ portion of the expression is a bit harsh.

“I am a big believer in seasonal rotation, but instead of retreating, I recommend rotating,” Sam Stovall, CFRA Research’s chief investment strategist, told Yahoo Finance.

The only sector to post gains during the month of May was real estate, according to Bank of America. In fact, the S&P Real Estate sector ETF (XLRE) is up 17.8% since the start of the year, compared to a roughly 15% gain for the S&P Technology sector ETF (XLK).

Still, for investors who didn’t follow the ‘sell in May’ axiom, there is the possibility of a stock market rebound. UBS says that since 1928, the May-August has clocked an annualized return of 2.3%, as Yahoo Finance reported in April.

Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.

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