It’s that time of the year again when stock market lore advises investors to get out of the market and, effectively, go on holiday for six months. And, indeed, Sell in May has been good advice over certain periods, for example since 1970 the average return in May for the FTSE All-Share Index has been -0.4% (making it one of only three months that has a negative return the other two being June and September).
However, in recent years equities have performed somewhat better in May. Since 2000, the market has seen more Mays with positive month returns than negative and, as can be seen in the accompanying chart, in the last five years the market has been up every May (last year, in 2017, the FTSE All-Share Index had a not insignificant month return of 3.9%).
So, why does May have a bad reputation for shares, and why is the saying “sell in May” so popular?
One reason can be seen in the chart. Although the proportion of positive and negative month returns in May are roughly equal, it can be seen that the positive returns in May are relatively low, whereas when the market falls in May it can suffer quite a large sell-off. In May 2012 the FTSE All-Share Index fell 7.5%, which the largest fall in the index in any month in the last six years.
The average May
In an average May the market trades fairly flat for the first two weeks of the month, and then prices drift lower in the second half.
At the stock level, in the last ten years the FTSE 350 shares with the best average performance in May have been: Aveva Group [AVV], 3i Group [III], Babcock International Group [BAB], Cranswick [CWK], and Severn Trent [SVT]. All these stocks have only seen a negative return in May in one year since 2007. While the FTSE 350 shares with the worst record in May have been Petra Diamonds [PDL], Ferrexpo [FXPO], Thomas Cook Group [TCG], Acacia Mining [ACA], and Carillion [CLLN],
Coming up in May we have the two-day FOMC meeting starting on the 1st, US Nonfarm payroll report on the 4th, May Day bank holiday on the 7th (LSE closed), MPC interest rate announcement on the 10th, Spring bank holiday on the 28th (LSE and NYSE closed), and the quarterly 30th.
Article first appeared in Money Observer
Further articles on the market in May.