Thinking about selling in May and staying away from the S&P 500? Not so fast.
Thirteen stocks in the S&P 500 — including Take-Two Interactive Software, EPAM Systems and Generac Holdings — made it very worth investors' while to stay in the market, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
And that's saying something, as May is traditionally a disappointing month for most S&P 500 stocks. It's the eighth-worst month of the year. And yet, all these stocks beat the S&P 500 in May in the past five years and posted average gains in the month of 2% or more.
If you know where to look for top stocks, selling now could be a mistake.
" 'Sell in May and go away' is probably the most widely cited stock-market cliche in history," said Jeffrey Buchbinder, chief equity strategist at LPL Financial. "Every year a barrage of Wall Street commentaries and stories in the financial press floods in about this popular, but overused, stock market adage."
Sell In May? No Way
Why do some investors think they need to sell in May? It comes down to historical trends.
May kicks off a traditionally weak period for stocks. May itself is the S&P 500's fifth-worst month of the year, eking out a tiny gain of 0.2% on average since 1950, says "The Stock Trader's Almanac."
And that's just the start. The average May-through-October price returns are "anemic" not just for the S&P 500, but also for small caps and international and emerging-market stocks, says Sam Stovall of CFRA, citing research from "The Stock Trader's Almanac." The S&P 500 only rose 1.6% during those six months. And that contrasts with the period from November through April, the strongest six months of the year, rising 6.6% on average since 1945, Stovall says.
And it's not just a long-term oddity. The S&P 500 dropped an average of 0.4% in the past five months of May.
The numbers look damning for holding the S&P 500 in May. But that's only part of the story, Stovall says. He points out that since 1990 the S&P 500 only rose 2.2% from May to October. But the "right" stocks — defensive consumer staples and health care — do much better, gaining 4.5%.
And for that reason, Stovall says sector rotation makes more sense than bailing out. Shifting to consumer staples and health care from May to October, and then back to consumer discretionary, industrials, materials and tech from November to April, generated a 13.1% annualize return, topping the S&P 500's 8% rise.
So what kinds of S&P 500 stocks have been working in May?
Finding Big Paydays In May
Take-Two Interactive, a maker of high-quality video games, is the stock to own in May.
The stock hasn't fallen during the month even once in the past five years, including in May 2019 when the S&P 500 dropped 6.4% and in May 2022 when it fell 3.6%. All told, Take-Two has gained an average of 9.3% in the past five months of May, vs. the S&P 500's 0.4% drop.
Why is May such a good month for Take-Two? The company usually reports better-than-expected first-quarter profit in May. Last May, the company reported Q1 profit that topped views by nearly 15%. And the year before it reported Q1 profit that topped views by 110%.
Tech stocks usually lag in the six months following May. But software developer EPAM Systems is an exception. The S&P 500 stock rose in May in the past four out of five years. And it rose an average 8% during the month.
Looking for a more traditional May stock winner? Generator maker Generac is in the industrials sector, which tends to outperform in the six months starting in May.
The stock rose an average of 6.6% in May for the past five years and only fell once in the month in the past five years (-0.3% in May 2019).
So don't let May scare you away from all S&P 500 stocks. "Like most 'sell in May' periods, it again may pay to rotate rather than retreat," Stovall said.
Don't Sell These Stocks In May
These stocks all topped the S&P 500 every May for five straight years
| Company | Ticker | Average May change | Sector |
|---|---|---|---|
| Take-Two Interactive Software | 9.3% | Communication Services | |
| EPAM Systems | 8.0% | Information Technology | |
| Generac Holdings | 6.6% | Industrials | |
| ConocoPhillips | 5.5% | Energy | |
| Copart | 5.3% | Industrials | |
| Synopsys | 5.3% | Information Technology | |
| Cintas | 4.1% | Industrials | |
| Linde | 3.8% | Materials | |
| Synchrony Financial | 3.7% | Financials | |
| Republic Services | 3.5% | Industrials | |
| Crown Castle | 3.1% | Real Estate | |
| O'Reilly Automotive | 2.4% | Consumer Discretionary | |
| Iqvia Holdings | 2.1% | Health Care |
Sources: S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
