If you think April was ugly for the S&P 500, May's reputation for stocks is even worse. But don't assume selling in May and going away is your best bet.
Yes, it's true May is the ninth worst month of the year for stocks, says "The Stock Trader's Almanac." Even so, there are 11 S&P 500 stocks that consistently outperform during the month. All 11, including consumer discretionary Caesars Entertainment, communications firm Take-Two Interactive Software and information tech play Intuit, topped the S&P 500 each May going back to 2017. Additionally, all 11 of these stocks rose an average of 3.5%, or more, during the month, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
And that's much better than you can usually hope for in the fifth month of the year. The S&P 500 only rose 0.1%, on average, in May going back to 1950, says "Stock Trader's Almanac." And in a midterm election year like the one we're in now, it's usually worse with the S&P 500 dropping 1.8% on average.
"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," says Ryan Detrick, strategist at LPL Financial. "With many investors believing that it's better to avoid the market altogether by selling in May and moving to cash during the summer months."
But avoiding the market isn't always your best bet.
Stay Away From S&P 500 In May?
The whole idea that you should sell your stocks in May might sound good now. April was ugly, and it's supposed to be a good month for the S&P 500.
"April's reputation as the best month of the year for the equity markets was tarnished when the S&P 500 slumped 8.8%, posting the second worst April return since WWII, surpassed only by 1970's 9% stumble," said Sam Stovall, strategist at CFRA.
And it's even uglier this year so far. The S&P 500's 13.3% drop at this point in a year is the deepest since 1945, Stovall says. "History says, but does not guarantee, that the market may continue to be challenged, since the S&P 500 rose only 30% of the time in May following the 10 worst YTD-April declines and recorded a full-year gain only 20% of the time."
But there are reasons to stay engaged with the S&P 500.
May Not Always That Bad
Detrick says May's rap as being toxic for the S&P 500 is often not the case.
First of all, the S&P 500 on average gained 1.8% in the six months following May since 1950, Detrick says. Yes, that's the smallest six-month gain of any consecutive combination of months, but it's still positive. (What's the best six months? The November to April stretch with an average 7.1% gain.)
Additionally, selling in May would have been a bad ideas in nine of the past 10 months of May. The market has put up a solid 5.7% average gain the six months following May since 2012, Detrick says.
And May itself has been an OK month, too, for the S&P 500 more recently. Stocks gained in three out of the past five Mays. They actually jumped 3.6% in May 2020 (although they did fall 6.5% in May 2019).
Look at casino leader Caesars. It has gained nearly 17%, on average, just in the month of May in the past five years. Shares soared more than 58% just in May 2020. That's not a performance you'd want to run from. Shares are down nearly 27% this year so far.
Similarly, video-game maker Take-Two's shares lost roughly a third of their value this year so far. Even so, they've shot up nearly 13% in May in the past five years. Intuit, too, like many tech stocks is down 30% this year. But the financial software maker's shares gained 6.2% in May.
"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," Detrick said. "With sentiment flashing extreme caution, a healthy consumer, and strong corporate earnings, going away this May is something we would not subscribe to."
Top S&P 500 Stocks In May
Beat the S&P 500 every May since 2017
| Company | Symbol | Average gain in May (past five years) | Sector |
|---|---|---|---|
| Caesars Entertainment | CZR | 16.7% | Consumer Discretionary |
| Take-Two Interactive Software | TTWO | 12.9 | Communication Services |
| Intuit | INTU | 6.2 | Information Technology |
| Crown Castle International | CCI | 5.4 | Real Estate |
| Public Storage | PSA | 5.3 | Real Estate |
| American Tower | AMT | 5.2 | Real Estate |
| West Pharmaceutical Services | WST | 4.9 | Health Care |
| Extra Space Storage | EXR | 4.9 | Real Estate |
| Linde | LIN | 4.2 | Materials |
| Roper Technologies | ROP | 3.9 | Industrials |
| Cintas | CTAS | 3.7 | Industrials |
