Sell in May, Decoded

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Today is May 1. Every financial news outlet you follow will run some version of the same story in the next 72 hours. Is it time to sell in May and go away? Half of them will cite the historical data and say yes. The other half will cite the same data and say no. Neither side will tell you what the pattern actually is, why it exists, or what to do about it if you take it seriously.

I am going to walk you through the real version of this, stripped of the cliche, and give you the institutional framework that most pros actually use during the summer months. It is not what you think.

The original adage is one of the oldest in finance, a holdover from 18th century London where bankers and aristocrats would leave the city for the summer and return in time for the St. Leger Stakes horse race in September. The modern version, as most Americans know it, suggests selling equities on May 1 and buying back in on November 1.

If you look at the historical record, the pattern is real. From 1950 through 2024, the S&P 500 delivered an average return of approximately 7.2 percent during the November through April window, including dividends, compared to roughly 2.1 percent from May through October. That is a gap of more than five percentage points. The pattern shows up not just in the United States but in over 90 percent of developed markets that researchers have studied. So the phenomenon is real, statistically significant, and durable across geographies.

Here is the part most of the commentary leaves out. The May through October return is still positive, on average. It is not a negative return period. It is a less good return period. Selling in May and sitting in cash means giving up a 2 percent expected return in exchange for whatever you can earn in short-duration fixed income during those months. In the current rate regime, with short Treasuries yielding around 4 percent, the cash alternative actually looks reasonable. In a regime where cash yields 0.5 percent, it is a terrible trade.

There are several hypotheses, and the honest answer is that multiple factors probably contribute.

The seasonal behavior of institutional flows is part of it. Pension fund rebalancing, year-end bonus deployment, and tax-loss harvesting all create flows that cluster in specific windows. The November through April period captures a lot of that flow. The summer months capture less.

The cyclical nature of earnings reporting plays a role. First quarter earnings season, which we are in the middle of right now, typically closes out in mid-May. After that, there is a two and a half month window where the market has less fundamental news to trade on, which tends to reduce momentum and increase volatility.

Vacation season matters more than people admit. Trading desks are thinner, liquidity is lower, and the market is more susceptible to news-driven swings because fewer participants are at their terminals to dampen the moves. Lower liquidity is associated with higher volatility and, on average, lower realized returns.

Geopolitical and weather-driven events cluster in the summer. Hurricane season, the peak of summer driving demand for oil, Middle East tensions that historically spike around certain religious and political calendars. These are not predictable enough to trade on, but collectively they create a higher base rate of exogenous shocks.

Whatever the exact mix of causes, the pattern is real. The question is what to do about it.

Before I give you the framework that actually works, let me make the case for ignoring the pattern entirely, because that is what most long-term investors should do.

The first problem with selling in May is taxes. If you are holding positions in a taxable account and you sell in May, you generate a taxable event. Short-term gains are taxed at your ordinary income rate. Long-term gains, assuming you have held for more than a year, are taxed at the capital gains rate. Either way, the tax friction alone is often larger than the incremental return you would capture by switching to cash for six months.

The second problem is timing. The pattern is an average across 75 years. In any individual summer, the S&P 500 could be up 15 percent or down 15 percent. If you sold at the beginning of May 2024 and waited until November, you would have missed a substantial rally. If you sold at the beginning of May 2022, you would have dodged a significant drawdown. On average, staying invested wins, but the variance is enormous.

The third problem is reinvestment risk. Once you are in cash, when do you get back in? November 1? What if the market has rallied 8 percent between August and October? Do you chase? Wait for a pullback? Most people who go to cash never cleanly reinvest. They end up waiting for the next correction that never quite arrives, and the opportunity cost compounds.

For a long-term investor with a 20 or 30 year horizon, the correct answer to sell in May is almost always no. Leave the allocation alone.

Here is where the story gets interesting. Research from the Center for Financial Research and Analysis, covering data from 1990 onward, shows that the seasonal pattern is not uniform across the market. Certain sectors dramatically outperform in the November through April window, and certain sectors hold up much better than the broad index during the May through October window.

Specifically, the data suggests that cyclical sectors, which include technology, consumer discretionary, industrials, and financials, capture most of the November through April outperformance. Defensive sectors, which include healthcare, consumer staples, utilities, and to some degree real estate investment trusts, tend to hold up relatively better during the May through October window.

This gives you a middle path between ignoring the seasonality entirely and going to cash. You can tilt your sector exposure toward defensives during the summer and back toward cyclicals in November, without ever leaving the market. The gross exposure stays constant. Only the internal composition changes.

In practice, this might look something like shifting 10 to 15 percent of your equity allocation from the Nasdaq 100 or a consumer discretionary ETF into a quality-focused defensive ETF or a healthcare-heavy fund around May 1, and reversing the tilt around November 1. You are still fully invested. You are still capturing the equity risk premium. You are just expressing a view that the composition of returns is likely to shift seasonally.

The math on this approach is interesting. Even a relatively mild tilt, say 15 percent of the equity book, can historically add 50 to 100 basis points of annual return over a passive benchmark, with lower volatility during the May through October window. That is not a life-changing edge. It is a modest, reliable improvement that compounds meaningfully over 20 or 30 years.

If you are going to execute a sector rotation, do it efficiently. Rotating in and out of sector ETFs generates transaction costs, bid-ask spread friction, and taxable events if you are in a taxable account. The honest math is that for an account below a few hundred thousand dollars, the friction often eats most of the benefit.

Three practical adjustments that usually work better than a full rotation.

First, concentrate the rotation in your tax-advantaged accounts. Your IRA, your 401(k), your Roth, these are the accounts where you can shift exposure without generating a taxable event. Keep your taxable account on autopilot and let the tax-advantaged account do the rotating.

Second, rotate at the margin, not wholesale. If your target allocation is 60 percent equities with a 40 percent tech weighting inside that equity sleeve, consider temporarily dialing the tech weighting down to 30 percent and redirecting the difference into healthcare or consumer staples. You do not need to rebuild the portfolio. You just need to nudge the composition.

Third, use new contributions instead of liquidating existing positions. If you are adding 1,000 dollars per month to your accounts, direct the next six months of contributions into defensive sectors. You achieve much of the same effect without generating any sales at all.

A tool like M1 Finance is particularly useful here because its pie structure lets you adjust target weights without manually placing trades. You set the new target, and contributions flow in accordingly. If you set the rebalancing to happen at a threshold rather than on a calendar, you avoid triggering tax events at poorly timed moments.

For the monitoring side, Empower’s portfolio dashboard lets you see your effective sector exposure across every account on one screen. Most investors are surprised to discover that their actual sector weights are nothing like what they thought they were. Knowing the starting point is half the work.

The seasonal data is a base rate, not a prediction. In 2025, the sell-in-May window was disrupted by tariff volatility that pulled forward some of the summer weakness into April. In 2026, the trade war is still in play, oil prices are elevated, and the Fed is in pause mode. The base rate says summer returns are lower on average. The specific set-up this year could produce any outcome.

Do not confuse the seasonal pattern with a market call. Nobody knows what the S&P 500 will do between today and November 1. If someone tells you with confidence that this summer will be weak or strong, they are selling you a newsletter or a trading system, and neither will work as advertised.

The right stance is humility about the short term combined with discipline about the long term. The seasonal tilt is a modest refinement, not a replacement for a sound allocation. If you do not have a sound allocation, spend your energy there first. The seasonal nudge is a rounding error compared to getting your overall equity-to-fixed-income mix right.

Pull up your portfolio and look at your actual sector weights. If your tech and consumer discretionary exposure is above 50 percent of your equity book, consider whether a modest trim into defensives makes sense in your tax-advantaged accounts. Not a wholesale rotation. A nudge.

Decide whether you want to adopt any seasonality discipline at all. For many long-term investors, the honest answer is no, because the friction and complexity outweigh the benefit. That is fine. The important thing is to make the decision once, in writing, so you do not get pulled into tactical tinkering every time a pundit brings up the topic.

If you do decide to tilt, write down the rule. Something like, on May 1, reduce cyclicals by 10 percent and add to defensives. On November 1, reverse. The rule should be mechanical enough that you can execute it without a judgment call.

Do not sell your portfolio and go to cash. The research is clear. Going to cash during the May through October window, for a long-term investor, is almost always a losing trade once taxes and reinvestment risk are factored in.

The Wealth Architecture Blueprint walks through the complete allocation framework, including the factor tilts and seasonal adjustments that actually compound over decades. To get the Blueprint, reply BLUEPRINT.

If you want the specific sector rotation worksheet I use to track exposure and rebalance targets, reply ROTATION and I will send it over.

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Have a great weekend.

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