masterwordsmith-unplugged

Investors should strongly consider cutting their stock exposure this coming May Day and parking the proceeds in cash until Halloween.

That advice comes courtesy of a famous piece of Wall Street folklore that is known by the adage “sell in May and go away.”

Unlike most of the other stories investors tell, however, the historical evidence in favor of this one is surprisingly strong. And deeper drilling into the data suggests there are ways to tweak the approach so that you don’t have to dump stocks entirely to capture some of the benefit.

You might also know of the “sell in May” pattern by its other name, the “Halloween indicator.” Both refer to the pronounced tendency for the stock market, on average, to turn in its best returns between Halloween and May Day — referred to loosely as the “winter” months.

The stock market’s average return during the other half of the year, the “summer” months, is far lower.

This pattern has been very much in evidence in recent years. Since the seasonally favorable period began last Halloween, for example, the Dow Jones Industrial Average DJIA -0.28%   has gained 11.5%. During last year’s unfavorable six-month period, by contrast, the Dow lost 0.9%. The year before that saw a 10.5% gain during the winter months and a 6.7% loss during the summer months.

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