All the 'twitchers' out there know that the main migratory period for birds continues throughout April and right into May. And in keeping with the natural cycles of our feathered friends, at this time of year, traders with shorter time horizons start to ponder whether to migrate out of equities in favour of fixed-income securities or perhaps even cash. The 'sell in May' mantra also provides investment journalists with a handy fall-back option when interest cuts have been delayed, and with it the anticipated spur to stock market valuations.
There is no shortage of data and accompanying analysis suggesting that the period from May through to Halloween, while not exactly fallow, compares unfavourably with the remaining months of the year; the average return of the S&P 500 during the period in question is five percentage points adrift of the rate achieved from November to April. This is based on data covering the past three decades, but there is considerable variability – summertime bull runs are not unknown. However, it can be shown that even the average returns achieved during these bull runs have come up short of those recorded during autumn and winter.
In the UK, we have a wider window to make good on our stock market positions. UK investors are expected to come back to the market following the running of the St Leger Stakes horse race in the middle of September. The reason for this is that historically it was assumed that market traders would return to the fray following completion of the last leg of the English Triple Crown series of races. It does smack a little of the late 18th century, a period in which gentlemen dedicated a disproportionate amount of time to gambling pursuits. Today, it seems slightly fanciful, although you will find no shortage of City corporate sponsorships at National Hunt meetings.