You are here: Home - Investing - Experienced Investor - News -

Should investors ‘sell in May and go away’ until summer 2022?

Written by:
Investors may sit on the stock market side lines if they heed the seasonal theory ‘sell in May and go away, don’t come back till St Leger Day’. But is it the right thing to do this year?

Investors have been spooked by the Russia Ukraine war, rising inflation and now the cost-of-living crisis, adding volatility to global stock markets in the first few months of 2022.

But the age-old adage suggests that the summer months are prone to market upsets, with some investors choosing to avoid activity during this time.

However, in reality, the ‘sell in May’ theory has little to do with the perceived risks of being invested during the warmer months and is instead rooted in the social calendar of a bygone age.

It dates from the time that stockbrokers would typically sign off work to enjoy the summer season, rich in sporting and social events. This included Royal Ascot, Wimbledon, Henley Royal Regatta, Cowes Week, and would end with the St. Leger flat race in mid-September.

As such, traditionally nothing much happens over the summer months so the theory goes that investors can reasonably sell their holdings in May and buy them back in September.

Putting the sell in May theory to the test

Online investment service Bestinvest looked at the performance of the UK stock market (as measured by the MSCI United Kingdom Index) during the months of May, June, July and August over the last 50 years.

Since 1972, UK share prices declined 46% of the time and rose 54% of the time, “indicating no strong overall pattern of either losses or gains”, Jason Hollands, managing director of Bestinvest said.

However, once dividend payments were included, as well as share price movements, the four months to August delivered a positive total return for investors 64% of the time.

Meanwhile, global shares (as measured by the MSCI World Index) saw positive returns 64% of the time, and 68% of the time once dividends were included.

Hollands said: “There is no doubt that there have been some particularly turbulent summers in the past – especially during the seventies – and it is these that cemented the views of some investors that the summer months are volatile. However, the eight times over the last fifty years when the UK stock market has posted double-digit losses during May-August have been matched by eight sizzling summers when the total returns made on UK shares were over 10%.”

Should the folklore be put to rest?

Hollands said that while there is no convincing case that the summer months are usually loss-making, analysis of the average monthly returns over the last 50 years revealed that historically June has been the worst month with an average decline in UK share prices of 0.92% (-0.60% once dividends are factored in).

Average returns have also been slightly negative in May too, with September another month that has seen a larger share of market slips.

By contrast, April, January and December have tended to be the best months for average returns, with a stock market ‘Santa rally’ in the run up to Christmas as this month typically enjoys a seasonal uplift.

‘Keep calm and carry on’

Hollands, said: “Current investor sentiment is being impacted by the war in Ukraine, soaring inflation, the prospect of sharp increases in interest rates and likely supply chain disruptions as a result of another wave of draconian Covid lockdowns in China. There are therefore plenty of reasons why some might take a cautious view on the short-term prospects for the stock market given this wall of worry.

“However, in truth it is virtually impossible to accurately predict short-term movements in the markets and history suggests that there are as many examples of very strong summers for share prices as there have been market slumps. The case for systematically avoiding being invested during the summer is therefore very weak and selling up now might mean missing out on eligibility for valuable dividend payments, as well as any improvement in fortunes after a tough start to the year and a lot of worry being priced into the market.”

He added: “Our view, is that it is wiser to ‘keep calm and carry on’ and take a long-term perspective when investing in the stock market rather than try to second guess what may happen over the space of a few months.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Your right to a refund if travel is affected by train strikes

There have been a wave of train strikes in the past six months, and for anyone travelling today Friday 3 Febru...

Could you save money with a social broadband tariff?

Two-thirds of low-income households are unaware they could be saving on broadband, according to Uswitch.

How to help others and donate to food banks this winter

This winter is expected to be the most challenging yet for the food bank network as soaring costs push more pe...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week