ReutersYou’ve probably heard the old adage: “Sell in May and go away.” It’s a nice little rhyme, and it does have a basis in the market’s seasonal patterns. Historically, the stock market has typically been weaker from May to October than it has from November through April. Going back to 1950, the Dow is just about flat from May to October but up over 7% on average from November to April.
We’ve certainly seen plenty of summer and fall selling over the last three years, and many investors are understandably gun shy, wondering if history will repeat itself this year. On the one hand, the market has had a fantastic run, up almost 25% since the lows of last summer, so you have to expect profit-taking at some point. But sell in May and go away? That’s taking it a bit too far, especially this year.
There are two main reasons why I say this.Reason #1:
Much of the selling the last three years was caused by the European debt crisis, and that crisis is in a much better place now that the European Central Bank announced that it would buy back government bonds of countries that run into trouble. That safety net is one piece of good news.