by Adam Turnquist, Chief Technical Strategist, and Jeffrey Buchbinder, Chief Equity Strategist, LPL Financial
The S&P 500 ended April with a 0.8% loss, marking its third consecutive month of declines. Selling pressure was widespread as the equal-weight S&P 500 shed 2.4%. Tariffs captured most of the blame for the selling pressure, but concerns over the sustainability of American exceptionalism and the independence of the Federal Reserve (Fed) also contributed to a highly volatile month.
Looking ahead to May, market returns skew positive, but it has not historically been a strong month for stocks. Since 1950, the S&P 500 has generated an average May return of 0.3% and finished higher 61% of the time, making it the fifth-worst month for returns. However, returns have been a little more constructive recently. Since 2013, May returns have averaged 1.1%, with eleven of the 12 periods posting positive results.
May also kicks off the worst six-month stretch for the S&P 500, giving some credence to the popular “Sell in May and Go Away” seasonal strategy. This popular Wall Street maxim has its roots in London, where it was originally phrased as "Sell in May and go away, come back on St. Leger's Day." The St. Leger is a renowned horse race in the U.K., dating back to 1776. The idea behind this adage is that investors should sell their stocks in May, take a break during the summer to avoid seasonal market downturns, and return to the market in November, when conditions are typically more favorable.
Why is this phrase so popular? It might be due to a combination of math and marketing, areas where Wall Street excels. Besides being a catchy saying, the period from May to October has historically been the worst six-month return window for the S&P 500 since 1950. In contrast, the best-performing six-month window has been from November to April. This consistent seasonal pattern, coupled with the popularity of the phrase, may have turned it into a self-fulfilling prophecy over the years.
The “May–October Returns Tend to be Underwhelming” chart highlights rolling six-month price returns for the S&P 500 across all 12-month periods since 1950. And while the May through October time frame has historically generated an underwhelming average gain of only 1.8%, returns have been positive 65% of the time. On a more positive note, the more recent “Sell in May” time frame has yielded better results. Over the last 11 years, the respective median and average index returns from May through October were 3.1% and 4.9%, with 82% of periods producing positive results.
May–October Returns Tend to be Underwhelming
Source: LPL Research, Bloomberg 05/01/2025
Disclosures: Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested in directly. The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90.
While seasonality can be a potential factor that can influence market performance, LPL Research does not recommend investors sell their equity positions and “go away” until November. However, due to trade policy uncertainty and the question mark it leaves over the growth and inflation outlook, we do expect volatility to remain elevated and for choppy price action to continue. We contend this comes with the territory, as clarity and comfort are usually elusive when the market is attempting to recover from a significant low.
History tends to agree with our thesis of higher volatility over the next several months. The CBOE Volatility Index, more commonly referred to as the VIX or “fear gauge,” historically advances from July through October, often peaking in late September or early October.
For reference, the VIX represents implied 30-day volatility derived from the aggregate values of a weighted basket of S&P 500 puts and calls over a range of strike prices. In general, the higher the VIX, the more fear and uncertainty there is in the market, and vice versa.
Sell in May Months Can Be Volatile
Source: LPL Research, Bloomberg 05/01/2025
Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested in directly.
Summary
Seasonality data can provide important insights into the potential market climate, but it doesn’t represent the current weather. And when it comes to markets, tariff uncertainty and monetary policy right now have the power to make it rain, or part clouds into sunshine. The potential for trade deals and the transition to more pro-growth policies, such as tax cut extensions and deregulation, could help limit material downside risk for stocks. Thus far, earnings have been better than feared, but visibility remains obscured by a very fluid global trade environment.
From a technical standpoint, stocks have made progress since the lows last month, but are now approaching key overhead resistance from the prior July highs (5,667) and the 200-day moving average (5,746). Despite the recovery, there is still a lot of damage to repair. Leadership trends remain unclear, most S&P 500 stocks are trading in some form of a downtrend, and institutional participation in the recovery has been lackluster. Additionally, history shows that V-shaped recoveries are outliers, as most major bottoms are a process that requires time and often a retest of the initial lows.
Bottom line, we are staying neutral on equities tactically for now as the risk-reward trade-off in the short term is not very attractive, and we cannot dismiss the chances of a reversal lower in the coming weeks.
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