The saying "Sell in May and Go Away" is a well-known phrase in the US stock market, which implies that the performance of the US stock market from November to April, during the half-year period, tends to be better than the performance from May to October during the other half-year period.
Some people attribute this calendar effect to the impact of the mid-April deadline for US individual income tax filing, while others believe it is because most fund managers tend to be more aggressive in investing at year-end and year-beginning, and prefer to take vacations during the middle of the year. So, is this saying really true? Let's look at the objective data.
1. Is the "Sell in May" true in US stock market?
The chart below shows historical data from nearly 40 years (1985-2022) of the three major US stock indexes ( $S&P 500(.SPX)$ , $NASDAQ 100(NDX)$ , and $DJIA(.DJI)$ ). Average total returns for three indexes during November to April period are significantly higher than the returns during May to October period.
Source: Wind
2. Is the "Sell in May" phenomenon significant in the US stock industry?
From the statistical results of the 11 primary industries in the S&P 500, the "Sell in May" phenomenon is particularly evident in the industries of Industrials, Materials, Real Estate, Communication Services, and Energy. The average returns during November to April period are significantly higher than the returns during May to October period.
On the contrary, the effect is not as pronounced in the Consumer Discretionary, Healthcare, and Information Technology sectors.
Source: Wind
3. China's "Thursday Crash" phenomenon
Similar to the May effect in the US stock market, there are also some "peculiar" calendar effects in the Chinese market, among which the most famous one is the "Thursday Crash" phenomenon.
Due to the T+1 trading mode in China's A-share market, if money is needed over the weekend, stocks must be sold by Thursday at the latest, which often leads to larger selling pressure on Thursdays compared to other days of the week. From the statistical results, the overall performance of Thursdays is indeed worse than other dates.
Source: Wind
4. Pre-holiday effect in China's market
Similar to the "Thursday Crash" phenomenon, there is a pre-holiday effect in the Chinese market.
It means that before holidays like Chinese New Year, May Day, National Day and etc., due to the need for cash, there is often selling pressure in the stock market, resulting in a decline in stock prices.
The chart below shows the average total returns of 30 CITIC first-level industry indexes during the last 10 trading days of April from 2005 to 2022.
Source: Wind
It can be seen that most industries tend to decline in late April. However, in contrast, sectors such as Food and Beverage, Home Appliances, which are popular during holidays, tend to rise against the market trend. This is also easy to understand intuitively, as festivals and holidays often involve visits to relatives and friends, and gift exchanges.
5. Conclusion
Although the core of stock investment is intrinsic value, short-term fluctuations are inevitably influenced by investor sentiment and behavioral habits when there are no significant changes in fundamentals. That’s why calendar effects exist.
Whether it is the "Sell in May" phenomenon in the US market, or China's Thursday Crash and pre-holiday effects, they are supported by historical statistical results.
As May Day is approaching, holiday sector like Food and Beverage may perform well. $EFUND LIQUOR(03189)$ might be a good choice to invest in China’s consumption and profit from the holiday effect.
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