Should you sell in May and go away? Conflicting opinions on summer markets and their impact on your investments

by | May 1, 2023 | Portfolio Management | 0 comments

Wall Street indices have been remarkably strong over the past four months, with the S&P 500 index rising by 9% and the Nasdaq by 22%. However, this comes at a time when the summer months, which are considered weak, are around the corner. The “sell in May and go away” strategy has been in place for decades, with traders leaving the market in May and returning in October. While some banks, like Bank of America, advise investors to hold on to their shares during the summer, others, such as Wells Fargo, anticipate a market correction and recommend investors to sell now.

Director of research in the investment consulting division at Bank Leumi, Shmulik Karpf, told Globes that he also believes 2023 will end up being a positive year for the market, and that liquidating investments at this time is therefore likely to harm profits. Karpf cites an additional drawback: “If many people sell in May and buy in November, this will result in a self-fulfilling prophecy in which there will be a large supply in May and a strong demand in November.” Regarding Israeli capital markets, however, the situation is somewhat different due to the political crisis and the resulting economic damage, making it difficult to predict an investment strategy.

Bank of America building (Credit: Davis Turner/Bloomberg)

The conflicting opinions about whether investors should sell their shares now and avoid the summer markets or hold on to their shares are causing confusion. Bank of America’s central claim that investors should hold on to their shares appears to remain intact. Stephen Satmeyer, a technical strategist at the bank, has stated that the months of June and August are considered positive seasonally, so exiting the market will result in a loss of profits in these months. He also suggests that the “sell in May and go away” strategy is not particularly suitable this year, the third year of the presidency, which is also considered positive.

However, Wells Fargo is predicting that the US economy will enter a recession in the second half of the year, and they expect S&P 500 index to undergo a correction, reaching 3,700 points, while the index currently stands at 4,169 points. They explain that the strong downward correction is due to three main factors: aggressive monetary policy, liquidity and capital problems due to the banking crisis, and investors relying on credit to maintain expenses.

It is worth noting that the strategy of selling in May and coming back in October is not a foolproof. The lack of validity of this type of method has been witnessed in the last two years, when the Corona epidemic took over our lives. The Fed loosened monetary policy and caused the markets to strengthen in April and the following summer months. Later, in 2022, a spike in inflation and the consequent increase in the interest rate caused sharp drops.

Investors interested in the Israeli market face a slightly different circumstance. So far in 2023, the Israeli stock market has been rife with volatility due to the political crisis and the resulting economic damage. The Tel Aviv 125 index has decreased by approximately 2.2% thus far. Even though it may be difficult to predict a strategy for the Israeli market, it is important to keep an eye on the situation, as circumstances may change. Particularly when the government is currently negotiating with the opposition parties. A favourable outcome will undoubtedly stimulate the local market and result in markets regaining ground lost earlier in the year.

*Disclaimer: Data, information, opinions, forecasts in this article are the opinions of the writer and should not be taken as financial advice. The information is provided as a service to the reader.


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