It’s May now, shall we go? | Exchange places with Tom Bowley

We’ve all heard the famous Wall Street saying, “Leave in May,” right? It’s cute and it rhymes, but why not make the huge decision to liquidate all of our stock holdings? <비꼬는 말> Did I mention rhyme? One of the biggest complaints for investors everywhere is that the media is taking an “all in” approach to “get out in May.”

Investing is not that simple and doing a lot of independent research will help many analysts.

Let me start by saying that there is some truth to this saying. The premise of ‘Go in May’ is that the period from May to October is weaker than the period from November to April. This is true, and here are the S&P 500’s annual returns since 1950 to back it up:

• November to April: +14.59%
• May to October: +3.74%

Numbers don’t lie. But the question is not which period is better. The question is, ‘Should I leave in May?’ I don’t think it makes much sense to take this saying literally, and I’ll explain why.

Long-term bull market makes changes

I believe that May every year should be analyzed separately based on the current technical and sentiment situation in the market. Yes, we should not overlook the fact that the trend is weakening from May to October. But we are in an 11-year long bull market. Long-term bull market returns are much better than an “average” year. Let’s analyze the returns of the two periods at issue in this bull market.

• November to April: +17.04%
• May to October: +10.57%

The period from November to April was certainly stronger, but do you really want to “sink” during the period from May to October? 10.57% is a very good annual return. What I’ve written in the past is that historically the true “leave” period was from the July 17th deadline to the September 26th deadline. Even during the long bull market of the past 11 years, the period from July 18 to September 26 recorded an annualized return of -3.72%. This is your real “getting away” period. Unfortunately, it doesn’t rhyme and many CNBC contributors don’t do the necessary research. They just follow the song.

Finally, going back to 1950, excluding the true “vanishing” period from July 18 to September 26, annual returns from May to October jumped from 3.74% to 7.59%.

Growth vs. Value

Although May through October is weak, did you know that the four best months in a row for growth stocks (IWF) and value stocks (IWD) were May through August? Check out the seasonal chart for IWF:IWD over the last 20 years (including both bull and bear markets).

Combining the monthly underperformance/underperformance, we see that from May to August IWF outperforms IWD by 3.4%, while over the remaining eight months it outperforms IWD by only 0.5%. If you sit out from May to October, you could miss out on all that growth outperformance.

How has Apple (AAPL) performed historically? It’s one of the largest market capitalization companies in the world and a big driver of the S&P 500. Let’s take a look at AAPL’s performance compared to the S&P 500 on a monthly basis over the past 20 years.

AAPL’s outstanding achievements include:

• May to October: +17.8%
• November to April: +5.6%

Don’t want to “leave” AAPL from May to October?

Weekly Market Summary Video

After taking time off last weekend, I returned to YouTube yesterday for my latest weekly recap. I explained why this doesn’t look like a bear market. Watch my “This Is Not a Bear Market” video at your leisure. Please click “Like” on the video and “Subscribe” to the YouTube channel. Thank you for your support!

Don’t Leave Event in May

If you think research like the above plays an important role in your stock market analysis and decisions, you’ll love our next event on Tuesday, May 7th at 4:30 PM ET! There are some warning signs in the stock market right now. I’ll break down each warning sign in detail and give you exactly what to look for to determine if the next phase of the current secular bull market is underway. This is a “can’t miss” event reserved for EarningsBeats.com members. A free 30-day trial is all you need to get access to the best, most up-to-date independent research. Click here to learn more and register for this timely event.

Happy trading!

tom