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  Sell in May and Go Away! Why?
Posted Under: Conceptual Investing
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View from the Observation Deck  
  1. The old axiom in the stock market about selling your stocks at the close of April and then buying back in at the start of November once made some sense from a seasonality standpoint.
  2. When the U.S. was more of an industrialized economy it was not uncommon for plants and factories to close for a month or longer in the summer to retool and allow employees to vacation.
  3. The theory was that companies would conduct less commerce in that six-month span, which would translate into lower earnings.
  4. Today, due in large part to globalization, the world is far more interconnected and competitive, and there is less room for downtime, in our opinion.
  5. The three most glaring May-October (2001, 2002 & 2008) periods featured in the chart occurred while in the midst of the last two bear markets. Aside from those three, there hasn't been much downside for investors.
  6. The average return for the November through April periods in the chart was 8.14%, compared to a 2.49% return for the May through October periods. These returns, when added together, are in line with the historical norm.
  7. From 1926 through 2014, the average annual total return posted by the S&P 500 was 10.12%, according to Ibbotson Associates/Morningstar.
This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. Past performance is no guarantee of future results. The S&P 500 is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance.

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Posted on Tuesday, April 28, 2015 @ 3:11 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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