Sell in May and go away? Three resons to defy the old adage – UBS


We are entering a time of year when stocks have historically found it more challenging to advance. With many equity indexes making new highs, investors may be tempted to follow the old adage: Sell in May and go away. But the sell-in-May strategy doesn’t work consistently across markets and economists at UBS see reasons why this year may be different. 

Timing markets is notoriously tricky and can be costly

“While the strategy has worked for Europe, in the US a stay-invested strategy has tended to outperform, particularly in recent years. Market composition, with the US market more tilted toward growth stocks, partly explains the outperformance. The tech sector’s weight in the S&P 500 has increased to 27% compared with a weighting of just 8% for MSCI Europe. Trying to time the US market for seasonal reasons would have missed out on the outperformance of growth stocks in the bull market since the 2008-09 financial crisis.”

“In the current environment, it may be premature to expect a near-term peak in equities. The effect of fiscal stimulus and the post-COVID-19 bounceback in consumer and business demand is leading to extraordinary levels of growth, particularly in the US, that are likely to persist for a number of months yet. In turn, this supportive macro backdrop is feeding through into a stronger-than-expected recovery in corporate earnings – US 1Q profit growth will exceed 45%. In our view the rally in stocks has further to run.”

“For investors selling in May, buying back later can be psychologically difficult, particularly if markets have rallied in the meantime. This can delay the decision to reinvest even further, potentially compounding the effect. Moreover, in the current environment, holding cash for too long is expensive. With nominal interest rates lower than inflation, real rates are negative, so cash will be a significant drag on portfolios.”


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