“Sell in May and go away.”
This stock market adage has served investors well four years in a row. Every year since 2010, stock markets around the world have suffered significant corrections between a high reached in May and a low in the summer or early autumn: by 15 percent in 2010, 19 percent in 2011, 9 percent in 2012 and 5 percent in 2013, as gauged by the Standard & Poor’s 500.
Given that the Dow Jones Industrial Average hit its highest level ever on April 30, while the S&P 500 peaked less than 1 percent shy of its all-time record, it may seem sensible to follow the seasonal adage. Regardless of one’s views about the long-term prospects for the world economy.
That is precisely how financial markets have behaved since May 1. In the past week, investors around the world responded negatively to what have been, by any standards, extremely favorable economic figures from the United States, Britain and even Europe.
The most striking example of this perverse behavior was the reaction to U.S. employment figures, which often set the tone for investor sentiment around the world.
Not only did the April employment gain of 288,000 comfortably exceed Wall Street expectations, but upward revisions to three previous job reports strongly suggested that the U.S. economy’s slump around the new year, which caused a brief market panic in January, was just a weather-related aberration whose impact diminished steadily through the winter.