What Happened to ‘Sell in May & Go Away’?

What Happened to ‘Sell in May & Go Away’?

| May 20, 2024

“Sell in May and go away.” Or so goes the Wall Street adage.

But so far this year, that “old saw” is being tested. In fact, “Buy in May and go away” could be a better approach in 2024!

Why has May started so well? It’s all about the Fed and its outlook for interest rates.

“I think it’s unlikely that the next policy (interest) rate move will be a hike,” Fed Chair Powell said after the Fed’s two-day meeting in early May. He said deciding what's next for rates with stubborn inflation is no simple task, but raising short-term rates does not appear to be part of the solution.1

Stubborn inflation surprised the Fed when April's Consumer Price Index was lower than expected in mid-May. The news gave a boost to the financial market’s expectations that the Fed may adjust interest rates as early as September.2

So what does it all mean? Here’s how I interpret these crosscurrents.

First, Wall Street maxims may have some insights, but they are unreliable when creating an investment strategy. Sell in May suggests that the stock market underperforms during the six months between May and October. Doesn’t six months seem like a long time to be out of the stock market?

Second, the April inflation report was encouraging, but the Fed will likely need more data before considering any changes to short-term interest rates. (So don’t start any refinancing paperwork yet!)

And third, if you’re holding your breath waiting for the next Fed meeting or inflation report, you may be watching financial news too closely. Leave that job to me!

Sooner or later, the Fed will have enough evidence to determine what’s next for interest rates. The economy moves in cycles, so it’s only a matter of time before the Fed announces a change. When that happens, I’ll tell you what it means for the financial markets and, more importantly, your portfolio.

1. WSJ.com, May 3, 2024. “Stalled Inflation Vexes the Fed. Is It Noise or a New Trend?
2. CNBC.com, May 15, 2024. “CPI report shows inflation easing in April, with consumer prices still rising 3.4% from a year ago.”