Sell in May and go away?
A look at summer market prospects: Between strong historical trends and new risks on the horizon.
This old Wall Street saying tends to resurface around Memorial Day, suggesting investors reduce their exposure to stocks during a seasonally weaker period. But history doesn’t fully support that view. Over the past decade, the S&P 500 has averaged a +3.9% gain between Memorial Day (May 26) and Labor Day (September 1), closing higher 80% of the time.
Still, summer isn’t without risks. Trade tensions, downward revisions to earnings estimates, and a recent rise in interest rates could weigh on investor sentiment. For example:
- Tariff effects may catch up: While the economy has shown resilience, growth is expected to slow in the second half of the year as tariffs begin to more noticeably impact consumer spending and business investment.
- Corporate earnings outlook: Q1 2025 surprised to the upside. However, many earnings reports still don’t fully reflect the new trade environment. Full-year EPS estimates have started to come down, though they remain relatively optimistic, projecting +10% annual growth.
- Rising long-term rates: With the 10-year Treasury yield now above 4.5%, valuation pressures are building – especially in interest-rate-sensitive sectors like real estate.
Market implications:
While history suggests summer can be a constructive period for markets, current conditions make it harder to rule out potential volatility.
On average, the S&P 500 has seen a drawdown of roughly 7% at some point between May and September over the past decade.
Source: Raymond James
