Investing
Sell in May and Go Away? Depends on Brexit
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With May around the corner, should investors sell in May and go away this year? The phrase did not arise in a vacuum, nor is it coincidence or a self-fulfilling prophecy. Though a psychosomatic market may exacerbate the sell-off effect during these coming unpopular months from May through October, there is a fundamental reason for the seasonal decline in equities, the first evidence of which we will see next week. That is, a sharp drop in money supply almost always occurs in the last week of April and can persist anywhere from August to November, depending on the year. The effect is usually a slowing or falling equities market, or a crash at worst, depending on how long the drop lasts.
Since 2008, May to October has underperformed November to April in six out of eight years. Of those six times, four had seen actual declines in the May to October period. Only once since 2008 has the favored November to April period seen declines, while disfavored May to October has seen gains, and that was in 2009 when stocks were rebalancing after an historic crash. Pattern being, unless the market is in the midst of a major rebalancing, November to April will almost always outperform May to October.
But will this year be one of those four since 2008 in which we see real declines come May, or will it be only a mild underperformance as usual? Underperformance is not a problem for long-term holders, as long as there are still gains, so is this May really one to sell and go away?
That largely depends on three things — at least foreseeable things that can be planned for. First, how long the decline in money supply will last this year. Second, if Britain decides to enact Brexit and leave the European Union on June 23. Third, if a yes vote on Brexit dominoes Greece into finally defaulting come July.
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