May has been a tricky month over the years, a well-deserved reputation following the May 6, 2010 “flash crash”. It used to be part of what we called the “May/June disaster area.” From 1965 to 1984 the S&P 500 was down during May fifteen out of twenty times. Then from 1985 through 1997 May was the best month, gaining ground every single year (13 straight gains) on the S&P, up 3.3% on average with the DJIA falling once and two NASDAQ losses.
In the years since 1997, May’s performance has been erratic; DJIA up nine times in the past nineteen years (three of the years had gains in excess of 4%). NASDAQ suffered five May losses in a row from 1998-2001, down – 11.9% in 2000, followed by ten sizable gains in excess of 2.5% and four losses, the worst of which was 8.3% in 2010. Post-election-year Mays rank at or near the top.
May is the top performing NASDAQ and Russell 2000 month in post-election years. The Russell 2000 has been up 9 straight with gains averaging a whopping 4.6%. DJIA and S&P 500 (since 1953) have been nearly as strong, with May ranking 4th and 3rd respectively.
May begins the “Worst Six Months” for the DJIA and S&P. To wit: “Sell in May and go away.” Our “Best Six Months Switching Strategy,” created in 1986, proves that there is merit to this old trader’s tale. A hypothetical $10,000 investment in the DJIA compounded to $843,577 for November-April in 66 years compared to $319 loss for May-October.
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