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May 1st, 2021

Hedley Market Commentary - May 2021

Hedley Market Commentary - May 2021

I have been studying seasonal equity performances now that we are entering the ‘sell in May and go away’ period which is often cited. I have looked at the performance of the US S&P 500 Index as, with many other things, where the US goes, others follow (or are at least influenced).

The four best-known effects seem to be:

- ‘Sell in May and Go Away’. This old saying suggests that the odds are against you from May until October.

- ‘Halloween Effect’. The odds are favourable again in November.

- ‘Santa Claus Rally’. December is usually a good month.

- ‘January Effect’. It is a market rally in January.

To the right, I have listed the monthly returns since 2017 to see whether these factors play a part in investor returns.

The evidence gleaned from these numbers, admittedly over the shorter term, is that the outcomes are mixed, certainly where May is concerned. However, over the past 70 years, the S&P 500 has only gained on average 2% from May to October, with around a 6% return from November to April, so the longer term perspective bears this out rather more. Perhaps the other point to note is that defensive sectors generally perform better from May to November while cyclical sectors are best from November to April. In fact, it is the Halloween Effect which seems most conclusive as November is a consistently positive month for returns: of course, although longer term studies show different results, the conclusion seems to be that seasonal patterns cannot be relied on to successfully trade the market and there are probably better options if you are an active investor. For longer term investors, there are likely to be more important factors which influence investment decisions.

Finally, perhaps it is also interesting to note how many positive months there are compared to negative periods over the past 4 years and that, apart from a very small number of sizeable declines, how consistently positive the market has been, with 2017 showing only one insignificant negative monthly return for the S&P 500 Index.

This market commentary is not intended to provide information sufficient to make an investment decision.

All opinions contained in this report constitute Hedley & Company Stockbrokers Limited's judgment as atthe date of this report, and are subject to change without notice and are provided in good faith but without legal responsibility.

Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.

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