Sell in May, Reconsidered

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The slogan is so well worn it now functions less like advice and more like a Wall Street incantation. Sell in May and go away. Come back on St. Leger's Day. Get out for the summer. Pick your version. Every year, somewhere between the second week of May and the start of June, a fresh round of articles and a fresh round of clients ask the same question: should I be reducing risk because the calendar says so?

The honest answer is more interesting than the slogan.

The seasonal pattern the saying is built on is real. It is not a myth. Going back to 1950, the U.S. stock market has, on average, generated a substantially larger share of its total return during the November through April window than during the May through October window. The gap has been documented by every major research desk that has bothered to run the numbers. So the historical pattern is true.

The conclusion most retail investors draw from it is not.

Selling broadly in May, sitting in cash for six months, then re-entering at the end of October has underperformed staying invested in almost every long-horizon study, and it has done so by a meaningful margin. The pattern exists. The trade built on it does not work. Both of those statements are true at the same time, and reconciling them is the actual job.

Why the Pattern Is Real

Several structural forces push summer returns lower on average. Trading volumes thin out as institutional desks rotate vacation coverage. Liquidity providers carry smaller books. Earnings season concentrates in April and again in late July, with a long lull in between when there is less fundamental news to lift share prices. Capital-gains tax-loss harvesting and 401(k) rebalancing both cluster more heavily in the back half of the year. The seasonal flow of new retirement contributions is weighted toward early-year bonus cycles and December year-end planning, both of which sit outside the summer window.

Layered on top of those flows, the past century of major U.S. equity drawdowns has clustered heavily in the August through October range. The 1929 crash, the 1987 crash, the 2008 acute phase of the financial crisis, and the 2011 European debt crisis selloff all peaked in or arrived during late summer or autumn. That clustering shapes investor memory. After thirty years of every notable fall selloff stamping itself into the cultural record, the warning to clear the deck before summer feels grounded in lived experience.

The data agrees, on average. Since 1950, the S&P 500 has averaged roughly 2 percent in price return from May through October, versus roughly 7 percent from November through April, per long-running studies cited by Fidelity and others. That is a meaningful gap. It is the foundation under the saying.

Why the Trade Built on It Loses

So if the pattern is real, why does selling in May and sitting in cash underperform?

The first reason is that an average is not a forecast. The May through October period has produced positive total returns in roughly two-thirds of all years since 1950. Stepping out for six months means stepping out of positive returns in most years. The exits do not pay for themselves often enough.

The second reason is that the best individual days for the market are not evenly distributed. A small number of outsized up days drive a disproportionate share of long-run returns. Several of the strongest single-day rallies of the past two decades have landed inside the May through October window. JPMorgan Asset Management research has shown that missing the ten best market days over a twenty-year period cuts long-run returns roughly in half. Missing twenty cuts them by more than two thirds. The seasonal exit puts you at high risk of missing those days.

The third reason is friction. Selling generates taxable events in non-retirement accounts. Re-entering creates new cost basis and resets short-term versus long-term holding clocks. Bid-ask spreads, even on deep ETF markets, take a small bite each round trip. None of these are large on their own. Stacked across ten thousand investors all doing the same trade, they erode the strategy's edge before it has a chance to produce one.

The fourth reason is regime change. The summer of 2020 was a violent V-shaped rebound off a pandemic low. The summer of 2023 saw the S&P rally roughly 9 percent driven by AI-related capex names. The summer of 2024 produced positive returns again. The summer of 2025 also broke the seasonal template. Four of the five most recent summers have run hot, in part because the AI capex cycle is structural and does not pause for vacation calendars. When the historical base rate runs into a regime that contradicts it, the regime tends to win.

The Question the Slogan Is Actually Asking

Here is where the saying earns its keep. It is wrong about the trade, but it is right about the question.

The right question is not whether to exit the market on May 1. The right question is whether your portfolio is positioned for the regime you are actually in. Sell in May, taken literally, is a calendar rule. Sell in May, taken as a prompt, is an annual reminder to do four things that disciplined investors do anyway: rebalance, raise quality, manage tail risk, and rotate exposure where the underlying conditions have shifted.

None of those four things requires selling the market. All four of them are easier to do in May than they will be in late August when the next round of headline risk arrives.

The Four Moves Worth Making

Move 1: Rebalance to your written target

If equities have outperformed your written target allocation, sell the excess. Not all of equities. Just the excess. A target portfolio that calls for 70 percent equity exposure but is sitting at 78 percent after a strong year is overweight by 8 percentage points. That 8 percent should come off the top and be redeployed into the asset classes that have lagged. This is mechanical, not directional. It is the rebalancing your policy already committed you to.

If you do not have a written target allocation, today is the day to write one. Two lines on a notecard is enough: target equity percentage, target fixed-income percentage. Everything else is detail.

Move 2: Raise quality inside the equity sleeve

Trimming positions is one decision. Choosing what to trim is another. The cleanest framework: when you rebalance off the top, trim the lowest-quality, highest-leverage, most speculative positions first. Names with weak balance sheets, unprofitable issuers, and the highest implied volatility in the portfolio. Leave the durable cash-flow-generating positions in place. The net effect is a portfolio that is the same size or slightly smaller, but composed of higher-quality holdings. This is a free quality upgrade you only get to make during periods when the speculative positions are showing gains.

Move 3: Build the income floor

With the fed funds rate in the 3.50 to 3.75 percent range, short-duration Treasury exposure and high-yield savings instruments are paying real money for the first time in over a decade. The income floor is the portion of your portfolio that pays you regardless of equity-market behavior. A reasonable target floor for most balanced investors is twelve to eighteen months of essential expenses, held in a combination of high-yield savings, money market funds, and short Treasuries. If summer brings a drawdown, the floor lets you avoid forced selling. If summer brings a rally, the floor still pays.

Move 4: Pre-position your watch list for adds on weakness

The investors who buy well during summer pullbacks are not making decisions in the middle of a 4 percent down day. They are buying from a pre-written list with pre-decided position sizes and pre-decided price levels. The list is built in calm conditions, in May. Pick five to eight high-quality names or funds you would want to own more of. Write the price level at which you would be a buyer. Write the dollar amount you would commit at that price. Then leave the list alone until summer hands you the opportunity to use it.

Tooling the Four Moves

Each of these moves is harder to execute by hand than it is to describe. The retail edge comes from systematizing the work so it actually happens.

For visibility, Empower gives you the aggregated allocation view across every account, which is the prerequisite for measuring drift against a target.

For mechanical rebalancing, M1 Finance lets you set a target allocation as a percentage-based portfolio and rebalance the entire account back to target in one click. The friction of executing twenty trades manually is the reason most investors skip rebalancing. Removing the friction is the entire game.

For the watch list and price-trigger alerts, Make.com connects price data, your spreadsheet of buy levels, and the notification channel you actually check, so the alert reaches you the day the price hits, not three weeks later when you happen to log in.

What This Year Is Actually Telling You

The 2026 setup is not a clean replay of any single past summer. The Fed is on hold. Inflation has been sticky without breaking out. Oil prices have been jumpy on geopolitical risk. The AI capex cycle continues to underwrite earnings strength in a narrow but heavy slice of the index. Earnings revisions are still net positive, but the valuation cushion is thinner than it was twelve months ago.

Three specific things distinguish this summer from the historical template. First, the market is entering the slow season with rates already restrictive rather than accommodative. That is unusual. In most of the past forty years, the Fed was either cutting or holding at low levels through the summer months. A Fed that is holding at 3.50 to 3.75 percent while inflation is still in the high 2s is a Fed with real ammunition still to use if growth softens. That is asymmetric in your favor.

Second, corporate balance sheets at the top of the index are unusually strong. The four largest hyperscaler names alone are guiding to roughly 700 billion dollars in 2026 capital expenditure, the bulk of it AI-related. That spending flows directly into the revenue lines of semiconductor companies, data-center REITs, networking equipment makers, and the power utilities that serve the data centers. The seasonal template says lighten exposure. The capital expenditure cycle says one of the largest earnings tailwinds in modern market history is still in flight. Those two signals point in opposite directions.

Third, breadth has been narrower than headline indexes suggest. A meaningful share of year-to-date returns has come from a thin band of names. Equal-weighted versions of the same indexes have lagged. Narrow breadth makes the index more vulnerable to any disruption in the leadership cohort. That is a portfolio-construction signal, not a market-timing signal. The response is to make sure your exposure is genuinely diversified, not concentrated in the same five names that are doing the work at the index level.

In a setup like this, a blanket seasonal exit is the wrong trade. A disciplined rebalance, a quality upgrade, a stronger income floor, and a pre-built watch list are the right trades. They do not require predicting what summer will bring. They prepare you for either direction.

The slogan is not your strategy. The discipline behind it is.

Your Move

If you want the seasonal positioning checklist I work through every May, reply to this email with the word SEASON and I will send the one-pager. It covers the four moves above with the calculations, the price-trigger template, and a worked example using a model 70/30 portfolio.

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Taylor Voss

Money Systems Lab

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