May on Par
The end of April is nigh. This is a quick look at how the U.S. market has performed historically in May.
First the (misleading) numbers…
From this 30,000 foot view, the average May return has fallen far short of the average month (+0.06% versus +0.76%) over the last 80+ years.
But averages can be misleading because they say nothing about how consistent an observation has been or whether it’s waxing or waning, so below I’ve assumed a trader was only long the S&P 500 in May (red) versus the average month (grey) each year since 1930.
[logarithmically-scaled, growth of $10,000]
The graph shows that between 1930 and 1984, May was in fact a consistent underperformer. But since 1985, it has actually outperformed the average month.
To illustrate, the graph below shows the same test beginning in 1985.
[logarithmically-scaled, growth of $10,000]
Given May’s turn of fate, I don’t see any reason to think the bearish pre-1985 results have any significance in today’s market. On the other hand, I also don’t see any reason to think post-1985 results prove that the month is particularly bullish.
In short, like all seasonality plays this one has by no means been a sure thing and doesn’t by itself justify a trade, but I’m calling the calendar month bias for May as NEUTRAL.
See the monthly seasonality map for daily seasonality predictions in May.
Happy Trading,
ms
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Filed under: Time-based | 2 Comments
Very interesting post. Simple but effective view.
A trading strategy that trades best (long) TDOM and worst (short) TDOM only in May for the Dax futures, renders pretty good results. Over 64% accuracy with a W/L ratio of 2.3 and good numbers overall.
This numbers are far better than feb, march, april, jun, aug, sep & november.
So, from some perspective this is a good trading month.
Thanks for your post.