It’s that time of year again, when flowering trees line our streets, daffodils and tulips wake up our gardens, and headlines encourage investors to consider the “Sell in May and Go Away” investment strategy. What exactly is this strategy, and should investors consider this in 2021 when we are still coping with the pandemic?
“Sell in May and Go Away” is an old stock-market adage suggesting that investors should sell their stocks in May, avoid historically weak stock market performance during the summer, and return to investing in the stock market after Halloween in November. This strategy is also known as the “Halloween Indicator.” Like many old sayings about the market, this one may have some basis in historical data, but it is not necessarily a sound strategy for making present-day decisions.
Assess Macroeconomic Momentum
Although we can find many interesting statistics and data points regarding “Sell in May and Go Away,” we want to be mindful about the importance of staying focused on our thoughtful longer-term plans, and we need to be aware of global market and economic forces. Here in 2021, as we slowly make our way through this pandemic, we are seeing improving economic-activity forecasts, business optimism, and bull-market momentum. Taken together, these indicators paint an encouraging macroeconomic picture. Specifically:
• Global growth estimates climbing. To be sure, the global pandemic is far from over, and the loss of human life continues to be devastating. In the LGBTQ community, the impact of the pandemic has been extremely challenging for people from a health and economic perspective, as has been documented by the Human Rights Campaign. Thankfully, progress is being made with vaccine rollouts and stimulus measures in the United States and other large economies, so we are seeing an improved outlook for global growth. Acknowledging this progress in a few large economies, the International Monetary Fund (IMF) increased its global growth forecasts in April and is calling for economic activity to increase by 6 percent worldwide, and by 6.4 percent in the United States. Along with this encouraging outlook, the IMF did emphasize the high level of uncertainty about the path of the pandemic, which we should be mindful of.
• Business optimism increasing. The Institute of Supply Management (ISM)’s monthly manufacturing and services surveys are indicating that the vaccines, stimulus payments, and statewide re-openings are driving economic recovery in the United States. These surveys are important gauges of optimism, which continues to improve across many industries as the U.S. economic recovery progresses.
• Bull market birthday. The current bull market entered its second year in March. Although we do not know how far this bull will run (and we would not try to forecast this), we are interested in historical data from LPL Research that suggest bull markets tend to build on first-year gains in their second year. According to LPL Research, “stocks [have been up in] the second year of a new bull market every single time—up a solid 16.9 percent on average.”
Stay Focused on Longer-Term Plans
Moreover, and most importantly, the idea of selling in May runs counter to the age-old advice about staying invested and focusing on longer-term financial plans. Strategies that encourage investors to focus on headlines and make decisions about ducking in and out of the markets do not take your specific situation into account. These strategies do not incorporate the thoughtful longer-term planning you have done for retirement and the protection planning for your loved ones (as examples), nor do they account for the potential tax implications of moving investments in and out of taxable accounts.
If you have questions about the “Sell in May and Go Away” strategy and any headlines you are seeing, you might consider working with a financial planner who can help you look behind the headlines and take stock of the markets and current broader economic trends, and assess how they might apply to your specific situation. In addition, working with an advisor who is knowledgeable about issues that pertain to the LGBTQ community can provide an added benefit, because various laws regarding same-sex couples can also be factored into your overall plan.
This article appears in the May 2021 edition of OutSmart Magazine.