Sell in May and Go Away? Not So Fast on Election Year

Sell in May and go away is a well-known stock market adage, and the table below makes it easy to understand why this saying has become so popular. Using S&P 500 Index (SPX) returns since 1948, we are now heading into the worst six-month stretch of the year.

From the end of April through October, the SPX averaged a return of just 1.83%, with 66% of the returns positive, while the six months before averaged a gain of 6.85%, with 77% of returns positive. With a presidential election coming in early November, let's dig into how these trends change during election years. 

What Changes During Election Years?

The 1948 presidential election was the first with an official Election Day (the Tuesday after the first Monday in November). I looked at how the SPX performed during the six months leading up to Election Day since then, and split up the years depending on whether there was a presidential election, mid-term election, or an off year.

The table below summarizes the six-month returns leading into Election Day. As we saw above, the six months leading up to November have been unimpressive. The returns in the table above don’t correspond exactly with the returns below, but they are close. It’s encouraging that presidential election years are more bullish, with an average gain of 4.67%, and almost 90% of the returns positive.

I was curious if stocks were more volatile heading into elections. As far as presidential election years are concerned, there appears to be no increased volatility. Looking at the standard deviation of returns, mid-term years are more volatile, while non-election years have a slightly lower standard deviation of returns.

Breaking this down even further, perhaps it’s best not to sell in May, because President Joe Biden is running for reelection. In the 11 presidential election years since 1948 in which there was an incumbent candidate, the SPX averaged a 7.57% return with an impressive 91% of the returns positive.

When there was no incumbent, the index averaged barely above breakeven, despite 88% of the returns being positive. That average is heavily skewed by the 2008 election, in which the SPX fell 28% in the six months before. Based on the 11 data points below, the adage doesn’t apply this year.