A look at ’sell in May’ indicator by the numbers: 6-month switching strategy often works

A look at ’sell in May’ indicator by the numbers

“Sell in May and go away” is a popular seasonal indicator for investors who like to consider historical trends as well as market fundamentals when buying and selling stocks.

It is based on the fact that the stock market has usually underperformed in the period from May through October when compared to the other half of the year.

The indicator, also known as the six-month switching strategy, holds that investing in a major stock-market index during the “best six months” (November through April) and then switching into bonds for the “worst six months” will generate significantly better returns.

That has been the case in 40 of the last 60 years, although not this past year.

Following are percentage returns of the Dow Jones industrial average during each six-month period dating to 1950. The first figure listed is from the traditional “worst” period (May through October); second is November through April of the following year. Years preceded by hyphens signify those when the indicator did not hold to form:

-2009: 18.9 percent; 13.3 percent

2008: -27.3 percent; -12.4 percent

-2007: 6.6; -8.0 percent

2006: 6.3; 8.1

2005: 2.4; 8.9

2004: -1.9; 1.6

-2003: 15.6; 4.3

2002: -15.6; 1.0

2001: -15.5; 9.6

-2000: 2.2; -2.2

1999: -0.5; 0.04

1998: -5.2; 25.6

1997: 6.2; 21.8

1996: 8.3; 16.2

1995: 10.0; 17.1

1994: 6.2; 10.6

-1993: 7.4; 0.03

1992: -4.0; 6.2

1991: 6.3; 9.4

1990: -8.1; 18.2

-1989: 9.4; 0.4

1988: 5.7; 12.6

1987: -12.8; 1.9

1986: 5.3; 21.8

1985: 9.2; 29.8

1984: 3.1; 4.2

-1983: -0.1; -4.4

1982: 16.9; 23.6

1981: -14.6; -0.5

-1980: 13.1; 7.9

1979: -4.6; 0.2

1978: -5.4; 7.9

1977: -11.7; 2.3

-1976: -3.2; -3.9

1975: 1.8; 19.2

1974: -20.5; 23.4

-1973: 3.8; -12.5

-1972: 0.1; -3.6

1971: -10.9; 13.7

1970: 2.7; 24.6

-1969: -9.9; -14.0

-1968: 4.4; -0.2

1967: -1.9; 3.7

1966: -13.6; 11.1

-1965: 4.2; -2.8

-1964: 7.7; 5.6

1963: 5.2; 7.4

1962: -11.4; 21.7

-1961: 3.7; -5.5

1960: -3.5; 16.9

-1959: 3.7; -6.9

-1958: 19.2; 14.8

1957: -10.8; 3.4

1956: -7.0; -3.0

1955: 6.9; 13.5

1954: 10.3; 20.9

1953: 0.4; 15.8

-1952: 4.5; 2.1

-1951: 1.2; -1.8

1950: 5.0; 15.2

Source: Stock Trader’s Almanac