May is one of the worst months of the year for the stock market. Since 1970 the average market return in the month has been -0.6%, with over half the years seeing negative returns in May. As can be seen in the accompanying chart, there have been a number of years when the market has experienced some sharp falls in May. Since year 2000, the situation has been barely better, the average month return has been -0.5%. This makes May the third weakest month of the year for stocks (after June and September).
It’s not immediately obvious why May has been historically weak for the stock market. The month is weak for most stock markets worldwide, so whatever the reason it’s unlikely to be anything UK-specific, such as the timing of the UK’s financial year.
For investors the great significance of May is that it is the start of the weaker half of the year (historically the market over November to April greatly out-performs the period May to October). This is flagged in the market with the famous saying, “Sell in May and go away…”. Some short-term investors, therefore, tend to reduce exposure to the stock market from May.
The average May
On average in May the market trades fairly flat for the first two weeks of the month, and then prices drift lower in the second half. The final trading day of the month, 29 May, has the distinction of being the weakest day for shares in the whole year.
Over the last ten years, strong shares relative to the general market in May have been: Cranswick, Babcock International Group, 3i Group, Severn Trent, and United Utilities Group. While relatively weak shares have been: Workspace Group, Petra Diamonds Ltd, Bovis Homes Group, Bellway, and Close Brothers Group
May is the third busiest month for results announcements with 52 FTSE 350 companies releasing their final results.
FTSE 100 v S&P 500
Internationally, May is the weakest month of the year for the FTSE 100 Index relative to the S&P 500 Index; on average the UK index under-performs the US by 1.9 percentage points in May.
On the economics front, the US Nonfarm payroll report is expected 1st May, and the MPC interest rate announcement on 11th May. The London Stock Exchange will be closed the 4th and 25th May. And the UK General Election will be held 7th May. Contributing to the “Sell in May” gloom, the election could also add a downward pressure on prices: in the month following a general election the UK stock market has historically had a negative average return.
Article first appeared in Money Observer
Further articles on the market in May.