“Sell in May” Strategy Falters as Market Strength Persists

The traditional Wall Street strategy known as “sell in May” has not proven particularly successful in recent years. According to Deutsche Bank data, holding the S&P 500 from the end of April through the beginning of September has resulted in returns comparable to those of a “sell in May” strategy that involves parking cash in bonds. However, selling stocks and placing the proceeds in cash during this period has led to considerably poorer returns. This month, in contrast to previous years, has seen the S&P 500 rise by 3.7% and come close to reclaiming its mid-March high, while the Dow has climbed for eight consecutive trading sessions, gaining more than 4.5%. The University of Michigan’s consumer sentiment survey indicates a rise in year-ahead inflation expectations, although the Atlanta Fed’s GDPNow forecasting tool suggests a current quarter growth rate of 4.2%. While bond funds attracted the largest weekly inflow in nearly three years last week, the Commerce Department’s upcoming April inflation reading is expected to show a moderate decrease, along with a slower pace of overall retail sales. Despite this, the Federal Reserve’s June policy meeting will include updated forecasts for the remainder of the year, including revised dot plots reflecting the Fed officials’ rate predictions. While markets currently anticipate no rate cuts until September, any upward shift in the new dot plots could increase Treasury yields and maintain the ERP at historically low levels. Consequently, stocks may witness only moderate gains throughout the summer months.