Superstition Is Not a Strategy

Doug Walters, CFA

Every May we see the headlines. Is it time to sell in May and go away? Investors are full of superstitions that are often based on correlation and not causation. This week we touch on why.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

It’s May again, and like pollen and playoffs, another seasonal tradition returns: the “Sell in May and go away” mantra. You’ll hear it on television, social media, and maybe even around the office water cooler. But before anyone hits the sell button, let’s take a closer look—because this isn’t a strategy; it’s a superstition dressed up as advice.

The idea behind the phrase is that investors are better off exiting equities in May and returning in November. It’s true that over long timeframes, the November-to-April period has slightly outperformed the May-to-October window. But as we pointed out last year, that difference is largely the result of a few outlier periods like the dot-com bust and the 2008 financial crisis—events that had everything to do with fundamentals and nothing to do with the calendar.

More importantly, the average return from May through October is still positive. We talked last year about the 35-year average S&P 500 return being 3.4% during these “go away” months. In 2024, the return was 14%. That would have been tough to miss. And how about this year? In the first half of May alone, the S&P 500 is already up over 6%! Investors who followed the “sell in May” script have missed out.

So why does this myth persist? Behavioral finance gives us some clues.

Humans are natural pattern-seekers. We’re wired to search for meaning—even when it doesn’t exist. Combine that with confirmation bias (seeking evidence that supports what we already believe), and it’s easy to see how a catchy phrase like “Sell in May” takes hold. It sounds like wisdom. But it’s not rooted in science.

And it’s not the only one. Markets are full of similar folklore: “The January Effect,” “The Santa Claus Rally,” “The Super Bowl Indicator.” Each of these has enjoyed its time in the spotlight, typically because of a few coincidental data points—not because of predictive power. When scrutinized under robust statistical analysis, most fail to meet even basic thresholds for reliability. Often it is correlation without causation. More often it is simply data mining.

As evidence-based investors, we put our trust not in rhymes or rituals, but in data backed by research. Long-term investing success is built on discipline, diversification, and patience—not superstition.

If you’re still looking for a catchy phrase to cling to this summer, try these on for size: “Don’t predict… prepare.” and “Focus on science… not speculation.” They may not rhyme, but your portfolio will thank you.

2.3%

CPI Inflation

The latest read of inflation was muted with the year-on-year figure dropping to 2.3% from 2.4%. Expectations were for 2.4%. Economists are more interested in what happens the next few months as tariff impacts begin to be felt.

Headline of the Week

Tariffs Off, For Now

A productive weekend for US and China trade representatives as an agreement was reached to significantly scale back reciprocal tariffs to 10% for the next 90 days. Though the US will keep in place the additional 20% fentanyl tariff on China. This de-escalation was welcome news for markets as the S&P 500 jumped 3% on Monday following the news.

Though long-term this may create more questions than answers, as the White House has been tight lipped about any trade agreements or pledges China may or will make to purchase additional US goods; for now, the markets will take solace in reduced short-term tariff rates that should lesson potential spikes of inflation, freeing up the Fed to cut interest rates should hard economic data begin to decline.

The Week Ahead

It’s a quiet week and hard to imagine what could drive markets next week… well other than the President. There are some speeches from Federal Reserve officials and a plethora of earnings from retailers, but none seem monumental.

Storefront

While we are way beyond peak earnings season, the calendar has a sizable portion of traditional retailers reporting next week.

Wal-Mart has already announced their results, but Target, Lowes, Home Depot, TJX, and Ross Stores are coming. Coupled with a few major clothing and footwear brands, like Ralph Lauren and Deckers, the company that owns Hoka and Uggs brands, a nice picture of clothing purchases should emerge.
Retail is in the crosshairs of the tariff disruption the world has been dealing with since April.
Clothing retailers and manufacturers especially should offer a vivid picture of the disruption in global trade.
Lowes and Home Depot could also offer some color on the domestic housing market.
With the biggest retailer, Wal-Mart already reported, it may be hard for the others to sway markets, but guidance and additional commentary from the C-suite will be useful, nonetheless.

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