Blindly adhering to the long-standing Wall Street maxim of “sell in May and go away” could prove to be a costly misstep this year, as investors grapple with whether to exit equities after a sharp market rebound or stay invested amid improving fundamentals, as per a report by Reuters.
The S&P 500 has staged an impressive recovery, rebounding nearly 10% in just 11 trading sessions after a steep decline triggered by disruptions in global oil supplies.
This swift turnaround has reignited a familiar debate: does seasonality still matter, or are current market dynamics strong enough to override it?
According to data cited by Reuters, the May-to-October period has historically delivered weaker returns, averaging around 2% since 1945, compared to nearly 7% gains during the November-to-April stretch. However, more recent trends tell a different story. Over the past decade, the same May-October window has produced a significantly stronger average return of about 7%, including a sharp 22.1% rally last year, suggesting that rigid adherence to seasonal strategies may no longer be as effective.
An analysis by Reuters highlighted the cost of following the seasonal approach too strictly. An investment of $10,000 in the S&P 500 since May 2016 would have grown to approximately $34,000 if held continuously. In contrast, a strategy of exiting the market during the summer months and staying in cash would have yielded significantly lower returns, underscoring the opportunity cost of missing sustained rallies.
Several supportive factors are currently working in favor of equities. The easing of geopolitical tensions linked to the U.S.-Iran conflict has reduced immediate risk premiums in the market. At the same time, strong corporate earnings have reinforced investor confidence, while the U.S. economy has demonstrated resilience despite the energy shock caused by earlier disruptions.
This combination of easing geopolitical stress, solid earnings growth, and economic stability has led many strategists to question whether this is a year when seasonal patterns should be set aside altogether.
However, caution has not completely disappeared from the market narrative. One key factor is that 2026 is a U.S. midterm election year, a period that has historically been associated with increased volatility. Reuters data shows that in five of the last ten midterm years, the S&P 500 declined during the May-to-October period, with an average drop of about 1.5%.
Additional uncertainties also linger. The long-term implications of geopolitical tensions remain unresolved, and the anticipated transition in leadership at the Federal Reserve, with Kevin Warsh expected to succeed Jerome Powell, could introduce shifts in monetary policy at a time when interest rate expectations are already uncertain.
Despite these concerns, market momentum may prove to be a decisive factor. Historical patterns cited by Reuters suggest that after recovering from moderate pullbacks, equities tend to perform strongly in the subsequent months. Since World War II, the market has typically advanced more than 8% in the three months following a recovery from declines of roughly 5.5% to 9.9%.
In this context, the current rally may carry more weight than seasonal caution. While risks tied to geopolitics, policy changes, and election cycles remain, the strength of the rebound and supportive macroeconomic backdrop suggest that investors may need to rethink traditional calendar-based strategies.
For now, the message from market data appears clear: relying solely on “sell in May” without considering broader market conditions could mean stepping out just as momentum begins to build.
