Investing can sometimes be very simple. This might be one of those times.
A while ago, we addressed one of the oldest market adages: “Sell in May and go away.” It holds that from May-October, markets tend to perform worse than during November-April.
Based on data for the past 15 years, this is especially true for the S&P 500, China’s Shanghai Composite Index and the MSCI World Index.
As shown above, over the past 15 years, the S&P 500 has returned 3.6 percent from May through October, and 6.6 percent from November to April. The Shanghai Composite Index returned 2.7 percent from May through October – and four times as much (13.7 percent) from November through April. And the MSCI World Index returned 3.5 percent from May through October… and 6.7 percent from November to April.
Already today, robots are much better at detecting cancer early on, dispensing medication and even predicting heart attacks.
And that’s not even the best thing about this exciting tech boom. Before you change your doctor, get the full story here.
In these markets, you were typically better off selling (or not buying anything) in May – and just returning to the markets in November. (Also, markets tend to do better in the fourth quarter.)
However, Hong Kong’s Hang Seng Index was an outlier – over the past 15 years it has outperformed from May to October (with 11.4 percent) compared to November to April (with just a 3.5 percent return).
Selling in May would have been smart
Markets had a lousy summer, across the board, as shown in the chart below.
All six of the indices we looked at did a lot worse this year in May-October than their average 2003-2017 performance for the period. The worst-performing of these markets was China, where the Shanghai Composite Index has fallen by 21.1 percent since May 1, 2018 (through October 25). The entire Asian market, excluding Japan, suffered the second-worst performance, with an 18.1 percent decline in the MSCI Asia ex-Japan Index.
According to this insider, the same pattern just appeared in a US$29 crypto that could explode as high as 10 times in the coming months.
But based on total change in performance, Hong Kong fared the worst. The Hang Seng Index swung from an average 11.4 percent gain (over the last 15 years), to a 16.4 percent loss this year.
The S&P 500 Index is down 9.2 percent from its recent highs in September. And extreme volatility of recent weeks has rattled investors. But during the May-October period, it’s still up 2.9 percent. That’s only slightly below the average 3.6 percent gain it’s seen during the past 15 years.
From 2003-2017, on average, November through April was the better time to hold shares, although you’d still have made money during May-October. This year, though, you lost ground (except for the U.S.) during that period – and you lost big.
History doesn’t repeat itself, but it does rhyme, as American humourist and author Mark Twain may have said. And this year it would have been smart to sell in May.
How much longer can U.S. markets continue to outperform? The so-called “Trump bump” has lasted two years. U.S. shares have outperformed other markets since 2008 (though the picture isn’t quite as clear cut since 2000). But valuations are at historic highs. And at some point, mean reversion will kick in for U.S. markets.
In the meantime, Asia continues to grow. China’s economy, while slowing, remains on track to grow by 6.6 percent this year, as its services industry picks up the momentum lost by its export-driven manufacturing sector.
Hong Kong continues to be one of the most financially stable economies in the world, with another fiscal surplus this year adding to its already sizeable US$129 billion in reserves. The government is planning massive infrastructure programmes, which will spur growth.
History was right about May through October, and it may well be right again. It suggests that November through April will be more amenable to markets. So it would make sense for investors to start increasing their exposure to stocks, particularly in markets most beaten down during the last six months.
Editor, Stansberry Churchouse Research