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John Crudele

John Crudele

 Business

Why ‘sell in May and go away’ remains true for Wall Street

By
John Crudele
Published April 30, 2018, 10:18 p.m. ET

Sell in May and go away.

That’s an old Wall Street saying concerning the stock market that — basically — has no basis in logic except for the fact that if enough investors know it, hear it and believe it, the advice tends to come true.

Today, of course, is the first day of May.

You might have noticed that a lot of people have been selling stocks for weeks, despite the fact that corporate profits have been excellent thanks to the tax law changes. I guess they believe in the ditty so much they wanted to get a jump on everyone else.

So now the saying probably should be: “With everyone else selling in May, don’t be a fool. Do it in Aprool.” I know, that’s a bad rhyme. But if it isn’t catchy, people won’t remember it, the advice will be lost, and I won’t become famous for saying it first.

In fact, if you sold stocks in January — when the Dow Jones industrial average was at a record 26,616 and up 5.6 percent for that month — and took off, you would have made out great so far.

The Dow closed Monday at 24,163 — down 0.6 percent.

Before you think that the 2017 tax overhaul comes without a price, remember that it will cause the terrible debt situation in the US to get worse.

It is already causing borrowing costs to rise more quickly than they would have. And it’s forcing the Federal Reserve (which meets again this week) to boost the rates it controls, even if the economy really isn’t ready for it.

Increasing interest rates has been the main reason why stocks are under downward pressure. The detrimental effects of the tax cuts are already cooked into the economy. US debt has risen by more than $1 trillion in just six months.

The benefits of the tax cuts — like higher corporate profits that help the stock market — need to start aiding the overall economy or those tax changes are going to quickly look like a bad idea.

Now, let’s get back to that “sell in May” advice.

Professional money managers often make most of their money early in the year. And when they do, they can relax during the summer — before returning to work after Labor Day.

Unless something big happens in the world economy or in Washington — and that could happen this year with all that’s going on politically — then not making major investment decisions during the summer is often the smartest non-move.

There will always be occasional spurts upward in the stock market. Many are artificially induced, like at the end of each month when money managers have to show their results to clients and their bosses.

And there will be big declines, like the nearly 500-point drop in the Dow that occurred last week, when the market has a tantrum.

But, generally, summer is quiet. So “sell in May” has taken on a life of its own.