By Martin Baccardax

The ancient financial market cliché, "Sell in May and go away," still seems to find favor among some investors -- despite its dismal record as a predictive tool.

But if you sold this May, you missed a historic surge.

The S&P 500 is on pace to finish out the strongest May rally in 35 years, based on FactSet data collected by Carson Group's chief market strategist, Ryan Detrick. The benchmark's 6.2% advance could get a further boost from tariff relief, after the U.S. Court of International Trade blocked Trump's broad-based tariffs -- but will also be tested by a late-Thursday stay from a federal appeals court.

And this May isn't an outlier. Over the past 12 years, the S&P 500 has finished lower in May only once, in 2019 -- curiously, that slump was tied to President Donald Trump's tariff increases on China-made imports. That period's 6.6% decline was retraced rather quickly, and the S&P 500 rose 17.4% over the next seven months and finished 28.9% higher on the year.

Fast-forward to 2025, where tariffs, trade wars, and China-focused debates remain central to the stock market's broader angst, and the economy is once again marshaled by Trump. But the market's performance this month is the polar opposite from 2019.

In fact, since 1950, when May gains have been north of 5%, the broader market has never turned lower over the next 12 months, and has recorded an average gain of 20%, according to Detrick.

"There's no better month of the year (in determining future returns) than May," Detrick told CNBC Thursday. "Usually May's not that strong, so this is another signal that this market wants to go higher."

That doesn't mean headwinds aren't gathering -- even beyond the daily drama of tariff headlines, fiscal vigilantes, and the "sell America" trade that has walloped the dollar and spiked Treasury bond yields.

One such headwind could be valuation: Bank of America estimates the median S&P 500 stock is now 10% pricier than its long-term average. The benchmark itself "is now trading at a premium to its historical averages on all 20 measures we track," BofA added.

Based on current earnings estimates, BofA strategists, lead by Savita Subramanian, peg the forward price-to-earnings multiple of the S&P 500 at 20.1, around 26.2% north of its long-term average.

That could prove to be expensive if earnings growth slows. At present, LSEG data sees full-year profits for the S&P 500 rising 8.6% to around $264 per share -- but that could change quickly if the economy slows and tariff-linked inflationary pressures linger.

For now, however, a number of factors suggest the May rally could lead into another year of strong stock gains.

First, growth metrics are holding up. While the second estimate of first-quarter gross domestic product continues to suggest the economy contracted, the Atlanta Fed's GDPNow tracker pegs the current quarter's GDP growth at around 2.2%.

Confidence is returning as well. The Conference Board's benchmark reading of consumer expectations, published this week, showed the largest monthly increase since 2009.

Tariff pressures, meanwhile, are fading. Although the Trump administration has a series of tools it can adopt to introduce new levies on imports, the overall impact is likely to be far less than was revealed during the president's "Liberation Day" unveiling on April 2.

"Tariff uncertainty may not have disappeared, but it has definitely eased," said Daniel Skelly, head of Morgan Stanley's Wealth Management Market Research and Strategy team. "But a longer-term extension of the rally may still depend on second-half policy initiatives, including deregulation and a pro-growth tax bill that doesn't raise concerns about runaway deficits."

If you did miss out on this May rally, time will only tell if you'll have a chance to get back in at similar levels.

Write to Martin Baccardax at martin.baccardax@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 29, 2025 16:21 ET (20:21 GMT)

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