Market Insights: Sell in May and Go Away? Not So Fast

Macroeconomic and Market Developments: 

• North American markets were mixed this week. In Canada, the S&P/TSX Composite Index rose 1.30%. In the U.S., the Dow Jones Industrial Average was down 0.16% and the S&P 500 Index declined 0.47%. 
• The Canadian dollar dropped, closing at 71.76 cents vs 72.40 cents USD last week. 
• Oil prices came up a bit. U.S. West Texas crude closed at US$60.95 vs US$58.55 last week. 
• The price of gold rose, closing at US$3,333 vs US$3,241 last week. 
• U.S. service sector activity improved in April, with the ISM Non-Manufacturing Index rising to 51.6 (from 50.8), exceeding expectations. New orders rose, hiring improved modestly but remained in contraction territory, and input costs jumped — the prices paid index surged to 65.1, it's highest since early 2023. Despite federal spending cuts and tariff-related uncertainty, the services economy remains in expansion. 
• The U.S. and U.K. announced a new trade deal that preserves Trump’s 10% tariffs on British goods but expands U.S. agricultural access and allows tariff-free Rolls-Royce engine imports. Commerce Secretary Howard Lutnick said the agreement could generate $5B in new U.S. exports and $6B in tariff revenue. The U.K. is also expected to purchase $10B worth of Boeing jets. Lutnick emphasized this as the first of several upcoming trade deals aimed at reducing reliance on China and boosting U.S. GDP by narrowing the trade deficit. 
• Canada’s unemployment rate rose to 6.9% in April as early signs of trade war fallout emerged. Manufacturing shed 31,000 jobs (mostly in Ontario), with retail/wholesale also down 27,000, though headline gains were propped up by 37,000 temporary public administration hires tied to the federal election. Despite adding a net 7,400 jobs, wage growth slowed, and job security sentiment softened in export-heavy sectors. Economists expect rising unemployment through the summer and see higher odds of a BoC rate cut in June. 
• Onex recouped its full equity investment in WestJet by selling a 25% stake to a consortium of foreign airlines, including Delta and Korean Air, for US$550 million. The sale, completed at a 25% premium to WestJet’s net asset value, reflects a 2.1x multiple on Onex’s initial investment and sets the stage for a potential return to public markets, with Onex still holding a 75% stake. 

 

Weekly Diversion: 

Check out this video: I know what I’m doing this weekend 

Charts of the Week: 

Last week, we discussed May seasonality and that the adage "Sell in May and go away" is rooted in the observation that the six months beginning in May have historically been the weakest for the S&P 500, averaging only a 1.8% gain and rising just over 65% of the time since 1950. This seasonal trend has led to widespread media attention each spring, as investors debate whether to step back from equities for the summer. However, while the historical averages suggest some caution, it is important to note that even the "worst" six months still tend to deliver positive returns, and the data does not advocate for avoiding markets based solely on the calendar. As we noted last week, a buy and hold strategy over the entire years since 1993 trumps the ‘sell in May’ strategy by factor of almost 3X. 

Source: Carson Investment Research, @ryandetrick 

Recent years have also challenged the reliability of this old market axiom. Over the past decade, the S&P 500 has actually posted solid results over the May-to-October periods, with an average return of 4.6% and stocks rising 80% of the time during these months, as highlighted in the first chart below. Notably, the month of May itself has been positive in nine of the past ten years, shown in the second chart. For example, 2024 saw a robust 13.3% gain during the seasonally weaker six months of May-Oct, highlighting that the seasonal effect is far from guaranteed. 

Source: Carson Investment Research, @ryandetrick 

Source: Carson Investment Research, @ryandetrick 

Furthermore, post-election years like 2025 tend to see stronger performance in May, with an average gain of 1.6%, making it the fourth-best month in such years, as the last chart shows. While the "Sell in May" strategy may have historical roots, the evolving market environment and recent data suggest that investors should be wary of following this adage without considering broader market trends and individual investment goals. Ultimately, while seasonal patterns are worth noting, long-term success is more likely to come from staying invested and focusing on fundamentals rather than relying on calendar-based strategies. 

Source: Carson Investment Research, @ryandetrick 

Sources: Yahoo finance, Bloomberg, Fox Business, First Trust, Financial Post Carson Investment Research, @ryandetrick 

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