THE WORST SIX MONTHS OF THE YEAR
“Sell in May and go away” is the seasonal stock market pattern in which the six months from
May through October are historically weak for stocks, with many investors believing that it’s
better to avoid the market altogether by selling in May and moving to cash during the summer
“Sell in May and go away” began in England originally as “sell in May and go away until St.
Leger’s Day.” The saying was based around the St. Leger Stakes, a popular horse race in
September that marked the end of summer and a return of the big traders and market volume
As [Figure 1] shows, since 1950 the S&P 500 Index has gained 1.8% on average during these
six months, compared with 7.1% during the November to April period. In fact, out of all six month combinations, the May through October period has produced the weakest—and least
But as with many things in life, it is never that simple.
WHAT HAVE YOU DONE FOR ME LATELY?
As we head into this seasonally weak period, keep a few things in mind. First, the S&P 500
Index has closed higher during the month of May in eight of the past nine years—so “Sell in
June” might be more appropriate. In addition, various sentiment signals we follow are showing
extreme caution and fear, potentially bullish from a contrarian point of view. The CBOE VIX
Index (VIX) recently spiked above 30, consistent with stock market lows. Various sentiment
polls are flashing extreme fear, while money managers are sitting on a good deal of cash as
well. Lastly, we don’t see a recession in 2022, and despite lackluster Q1 gross domestic
product (GDP) reported on April 28, we continue to expect economic growth of 3% this year,
led by strong corporate earnings, accelerating business investment, and a healthy consumer.
Here’s the catch—and there’s always a catch: These ‘worst six months of the year’ have been
quite strong lately. In fact, stocks gained nine of the past 10 years during these six months, as
you can see in [Figure 2]. So, although our guard is up for some potential seasonal weakness
and choppy action, be aware it could be short-lived and consider using it as a buying
IS THIS ACTUALLY NORMAL?
Clearly 2022 has been one of the worst starts to a year ever for stocks, but how rare is it? Here
are some statistics to potentially help calm some nerves.
The S&P 500 Index has fallen 13.9% peak to trough this year, near the 14% average of
all years since 1980. In other words, this year is fairly average so far.
During midterm election years, the average stock market correction is 17%, but stocks
rebounded 32% on average in the 12 months following those midterm year lows.
Of the last 21 times the S&P 500 has corrected double-digits in a given year since 1980,
stocks rallied back to end the year positive 12 times.
During those 12 positive years, the average gain at the end of the year has been a
As [Figure 3] shows, the correction so far in 2022 is line with an average correction.
The media will have fun with the “Sell in May” warning to drive up clicks and views. Although
you can’t argue that these months historically have been weak, they still sport a positive return,
so totally going away may not be wise. With sentiment flashing extreme caution, a healthy
consumer, and strong corporate earnings, going away this May is something we would not
We continue to prefer a modest overweight allocation to equities and a slight
underweight to fixed income relative to investors’ targets, as appropriate. Our year-end 2022
fair value target for the S&P 500 is 4,800–4,900, based on a price-to-earnings ratio of 20.5,
and our 2023 S&P 500 earnings forecast of $235 per share.
This material is for general information only and is not intended to provide specific advice or recommendations for any
individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive
outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as
predicted and are subject to change. References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are
unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance
of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no
guarantee of future results. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of
their products or services. LPL Financial doesn’t provide research on individual equities.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness
or accuracy. The CBOE VIX is a measure of the volatility implied in the prices of options contracts for the S&P 500. It is a market-based
estimate of future volatility. When sentiment reaches one extreme or the other, the market typically reverses course. While
this is not necessarily predictive it does measure the current degree of fear present in the stock market.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance
of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major
industries. The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit
earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more
for each unit of net income, so the stock is more expensive compared to one with lower PE ratio.
Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS
serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important
variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.
All index data from FactSet.
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