What a weak April has meant for stock performance in May and the rest of the year
This week, I’m looking at seasonality data that is relevant as we move into May. The table below summarizes monthly returns for the S&P 500 Index (SPX) since 1950. May has been a slight underperformer, averaging a return of 0.24, with 60% of the returns positive (the typical month gains 0.72% on average, with a 60.5% chance of being positive).
April, however, has typically been a strong month, but it lost over 8% in 2022. Below, I’ll explore if this changes anything in the short term, and look at whether or not it impacts longer-term seasonality, too.
May After a Weak April
The table below shows every year that the S&P 500 was down 2% or more since 1950. In these years, the first week of May has usually gone well, but the outperformance is short-lived. On average, the index lost 0.28% in the first two weeks of the month, with just 42% of the returns positive.
The full month of May lost 0.56% on average, with only 33% of the returns positive. In addition, out of the eight years April fell at least 3%, May was down in seven, averaging a 2.96% loss. This indicates that especially poor April returns have led to especially poor May returns.
Longer-Term Seasonality
May through October is, historically, the weakest six-month period of the year for stocks. Since 1963 (I will explain why I went back to that year momentarily), the next six months have averaged a gain of just 1.65%, compared to a 6.67% return the other six months of the year.
Next, I broke down those returns based on stock market sentiment. For a sentiment gauge, I’m using the weekly Investors Intelligence (II) sentiment survey, which we have data going back to 1963 (that's why I used that year). The editors at II collect published market newsletters and determine the percentage that are bullish, bearish, or expecting a short-term correction.
The table below summarizes the May through October SPX returns based on the percentage of bullish newsletters in the II survey. The most recent survey showed just 34% of newsletters were bullish, which is a fairly small percentage. This is good news because the S&P 500 has usually performed better over the next six months when the newsletters have been light on bullish sentiment. May through October has averaged a respectable 3.21% return, with 73% of the returns positive when the bullish percentage was below 40%.
