MW Now there's one more reason for stock investors to 'sell in May and go away'

By Mark Hulbert

It looks like a long, cold summer for the U.S. market

Economic uncertainty is higher following winters in which the stock market falls.

You may want to consider following the old stock-market adage to "sell in May and go away," after all.

I say "after all" because a month ago I argued that this famous seasonal pattern exists primarily in midterm U.S. election years. During the three non-midterm-election years of a presidential-election cycle, there is no statistical difference between the stock market's average returns between May 1 and Oct. 31 than during the other six months of the year.

Since 2025 is not a midterm-election year, I therefore concluded that there was no seasonal reason this year to stay out of the stock market over the next six months.

Now there is.

The U.S. stock market between Nov. 1 and April 30 performed uncharacteristically poorly. In contrast to an average gain of 6.0% for the Dow Jones Industrial Average DJIA in non-midterm-election years, the Dow over those six months lost 2.6%.

What's important for investors to know now is that in past nonmidterm summers that followed such wintertime losses, U.S. stocks fared even worse than they normally do in the summer months.

When uncertainty rises, investors require a higher rate of return to compensate them for the greater risk.

This tendency is illustrated by the chart above, which is based on the Dow's performance since it was created in 1896. There's always the worry when slicing and dicing the data ever more finely that you can "discover" endless patterns that have no statistical significance. But the differences for non-midterm-election years plotted in the chart are significant at the 95% confidence level that statisticians often use when assessing if a pattern is genuine. (For midterm years, by contrast, there is not a statistically significant difference.)

Why stocks may struggle this summer

It makes theoretical sense that disappointing winters are followed by especially disappointing summers. That's because economic uncertainty is higher following winters in which the stock market falls.

To show this, I analyzed the Economic Policy Uncertainty Index $(EPU)$ that was created several years ago by Scott Baker of Northwestern University, Nick Bloom of Stanford University and Steven Davis of the University of Chicago. During summers that followed winter losses, the EPU was almost 10% higher than in summers that followed winter gains. When uncertainty rises, investors require a higher rate of return to compensate them for the greater risk - and in order to have higher expected future returns, the stock market must first fall.

An analogy that helps us understand this phenomenon is turbulence on an airplane flight: Periods of turbulence tend to come in clusters, which is why it makes sense for the pilot to turn on the "fasten seatbelt" sign and keep it on until there has been a sustained period of calm.

The same is true in the stock market - which is why the recent stretch of extraordinary market uncertainty is likely to continue for several more months at a minimum. That, in turn, will weigh on stock prices until the "fasten seatbelt" light is turned off.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

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-Mark Hulbert

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May 07, 2025 15:12 ET (19:12 GMT)

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