For those familiar with stock season trends, & ldquo; In May sell and go away & rdquo; is a popular saying that we explore often in this room. The tables below explain where the saying comes from. The six month period from May to October was the worst six month period for that S&P 500 Index (SPX) . Over the past 50 years, the SPX achieved an average return of just 1.61% from May to October and 6.93% from November to April. The trend is the same over the past 20 years. This week I’m going to break down those historical returns in a few more ways to match the current environment.


Some connections to this bullish feeling

Given the stock market’s performance over the past year, it’s not surprising that investors are bullish right now. A popular measure of sentiment I look at is the weekly Investors Intelligence (II) survey. The survey takes into account more than 100 published investor newsletters and determines whether they are bullish, bearish, or expecting a correction (bearish in the short term but bullish in the longer term). In the last report, 64% of the newsletters were in the bullish category.

The bullish sentiment resulted in even worse than usual returns in the period from May to October. The table below shows that if the bulls register above 50% in late April, the S&P 500 will have an average loss of 0.42% over the next six months, with little more than half of the returns being positive.


Near all-time highs offer some encouragement

These dates are much more encouraging. The SPX is very close to its all-time high. If the index finished within 3% of its all-time high in April, the next six months tended to be strong. In this case, the S & amp; P 500 averaged 5.19% and was positive 80% of the time. Otherwise, returns were weak and averaged breakeven.


Upward sentiment at all-time highs

So we have a study to suggest that bullish sentiment tends to have bearish effects. A second study, looking at returns after an all-time high, suggests bullish implications. Of course, let’s look at what happened when both of them occur at the same time.

As expected, the returns were somewhere between bullish and bearish. In the past 50 years, there have been eight cases where April with the S&P 500 ended near all-time highs and at least half of the newsletters in the Investors Intelligence survey expected bullish returns. The stocks performed reasonably well, with an average return of 3.62% and 75% of positive returns. Compare this to the other years where the average return was 1.2%.


After all, here are the eight years that this has happened. This has been quite common lately and has occurred four times since 2014. The last time was two years ago, in 2019, when the SPX rose 3.11% over the next six months. In the previous period, the index gained over 8% over the next six months.



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