The Riskiest Month of the Year - Sell in May and Go Away?
The ghastly month of May is coming again. The period of May to Oct is usually not great for the stock market. As the old Wall Street saying goes "Sell in May and Go Away".Will we go through the horrors of 10 May 2006 again?
The History of May
To demonstrate the strength of the November through April period versus May through October, the Stock Trader's Almanac tracks the gains you'd see if you invested $10,000 in the Dow industrials on Nov. 1 of each year and then sold April 30.
If you'd done that every year since 1950, you'd have earned $492,060 on a $10,000 investment, according to the Almanac. But if you'd reversed the whole process, and invested the compounded $10,000 during the May-October period, after 54 years you would have ended up with a $318 loss. For the S&P, the gains would be $349,165 over the 54 years during the "best" six months and gains of $7,102 during the "worst" six months.
The Practical Rationale Behind May
What is the reasons for the selloff in May? The market is driven by a few factors: Liquidity & Earnings Expectations.Traditionally, business picked up during the holiday seasons. Companies will gain good profits while employees gain fat bonuses for their hard work. Thus when companies announces their very profitable quarterly earnings during April, the stock market will rally on good news. On top of their, employees with excess savings from their bonus will invest their monies, further boosting the stock market. May is usually the time when the bull is running on empty tank. All the good news have been announced and no news is bad news in for stock market.
Another explanations is based on the idea that Wall Streets fund managers will be going for their summer holidays during this period. When the big boys are on holidays, who will buy the stocks?
May 2007: A Good Time To Buy
2007 may prove to be a surprise for many May Doomsayers. The Market just had a big correction during Feb. Normally, the May correction is the result of the market running non stop from Nov-Apr. In this case, some of the excess has been taken away from the market. Moreover, global economies are still booming with little risk of flipping over too suddenly. I personally feel that the market should be flat or slightly down during these few months. The market will remain volatile and investors should buy on any dips.
The ghastly month of May is coming again. The period of May to Oct is usually not great for the stock market. As the old Wall Street saying goes "Sell in May and Go Away".Will we go through the horrors of 10 May 2006 again?
The History of May
To demonstrate the strength of the November through April period versus May through October, the Stock Trader's Almanac tracks the gains you'd see if you invested $10,000 in the Dow industrials on Nov. 1 of each year and then sold April 30.
If you'd done that every year since 1950, you'd have earned $492,060 on a $10,000 investment, according to the Almanac. But if you'd reversed the whole process, and invested the compounded $10,000 during the May-October period, after 54 years you would have ended up with a $318 loss. For the S&P, the gains would be $349,165 over the 54 years during the "best" six months and gains of $7,102 during the "worst" six months.
The Practical Rationale Behind May
What is the reasons for the selloff in May? The market is driven by a few factors: Liquidity & Earnings Expectations.Traditionally, business picked up during the holiday seasons. Companies will gain good profits while employees gain fat bonuses for their hard work. Thus when companies announces their very profitable quarterly earnings during April, the stock market will rally on good news. On top of their, employees with excess savings from their bonus will invest their monies, further boosting the stock market. May is usually the time when the bull is running on empty tank. All the good news have been announced and no news is bad news in for stock market.
Another explanations is based on the idea that Wall Streets fund managers will be going for their summer holidays during this period. When the big boys are on holidays, who will buy the stocks?
May 2007: A Good Time To Buy
2007 may prove to be a surprise for many May Doomsayers. The Market just had a big correction during Feb. Normally, the May correction is the result of the market running non stop from Nov-Apr. In this case, some of the excess has been taken away from the market. Moreover, global economies are still booming with little risk of flipping over too suddenly. I personally feel that the market should be flat or slightly down during these few months. The market will remain volatile and investors should buy on any dips.
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