But, like most things in life, that’s only half true. Some of the best compounders of our generation were thriving during this rough period for stocks.
Sell in May and Go Away
Let’s rewind. In November I posted a post mid-term election year playbook. Evidence suggested how November – April of those years tend to be bullish for equities. Going back to 1980, that 6-month stretch returns big gains of +12.93% for the S&P 500 (SPX).
That theme played out to a tee in this year’s cycle as November – April of 2023 saw the S&P 500 rally 9.08%. Boom!
That was then. What about now?
Going back to 1979, pre-election years like now hit a rough patch in the months of May – October. Of the 11 prior instances, the S&P 500 only rises a meager +1.7% in that half-year span.
For giggles, I included the annual returns in the following presidential election years. Sadly, those years were ho-hum too. The average lift for stocks is just 5.81%.
Looking at this table, selling in May could make sense. Afterall, investors know the average yearly return for stocks is 10% going back decades. Should we sit this period out?
NO! Some of the biggest winning stocks in recent memory appeared during the treacherous months of May – October, in pre-election years.
NVIDIA & SolarEdge Under Heavy Accumulation
Example 1. Take high-growth semiconductor firm NVIDIA (NVDA). It’s been an outstanding growth story in recent memory, and for good reason.
In fiscal year 2023, NVIDIA had sales of nearly $27B and earnings per share of $3.43. This monster performer started attracting heavy institutional support back in 2015. Spotting unusual buy pressure is our specialty at MAPsignals.
Below plots when NVDA was profiled on our weekly Top 20 report. Those blue bars include institutional support plus healthy forward fundamentals. That many signals makes this company an outlier stock:
Sitting the market out in May would mean you likely missed one of the strongest stocks of our generation.
Let’s do another from 2019. May – October saw chunky buying in SolarEdge Technologies (SEDG).
In 2022, SEDG saw revenues jump to $3.11B and EPS hit $5.95. More impressive, the company has a 5Y sales CAGR of 38.6%.
With growth like that, institutions were supporting the stock. Look how SEDG was consistently climbing during the sell in May timeframe:
These types of stocks remind us to keep searching for great opportunities even when the crowd is worried and bearish.
The Bottom Line & Explanatory Video
Sell in May and go away is real phenomenon. Since 1979, pre-presidential election years aren’t terribly bullish for markets in the months of May – October. Election years aren’t exciting either.
However, this is the type of environment when institutions are putting money to work in great stocks.
NVIDIA and SolarEdge are great examples of the stock opportunities that can reveal themselves when the crowd is worried. Institutional footprints are the guiding light.
These insights are a truncated view of MAPsignals research which you can learn more here.
Disclosure: As of the time of this writing, the author holds no positions in NVDA or SEDG at the time of this writing.
This article was originally posted on FX Empire