The U.S. stock market is preparing to end a positive—but volatile—month of April, and investors may be hoping that performance in May is even better.
History, however, suggests otherwise.
According to the Stock Trader’s Almanac, May is typically a mixed month for the major indexes, and the results are particularly bad in midterm years, as is 2018.
The Dow Jones Industrial Average
DJIA, -0.13%
is typically flat over the month of May, historically speaking. Based on data that go back to 1950, it declines 0.02% over the month, the ninth-best monthly performance of the year. Over the past 67 years, the Dow had 35 Mays that were positive, and 32 that were negative.
“As the market is finally making rally attempt at the end of April, the past month of the ‘Best Six Months’ we are obligated to remind you that the ’Worst Six Months’ are now upon us,” wrote Jeffrey Hirsch, chief executive officer of Hirsch Holdings, and editor of the Almanac. “This bearish seasonal stretch has been more pronounced in midterm years.”
For the S&P 500
SPX, +0.07%
May is the eighth-best month of the year, rising an average of 0.2%. The past 67 years have seen 39 Mays where the benchmark index ends in positive territory for the month, and 28 when it declines.
The Nasdaq Composite Index
COMP, +0.01%
which is the top performer among the main U.S. gauges thus far this year, should continue that strength if history is any indication. May is the fifth-best month of the year for the tech-heavy index, rising an average of 0.9%. Over the past 46 years that data exists for, May has been a positive month for the Nasdaq in 26 of them.
Thus far this month, the Dow is up 0.7% while the S&P 500 is up 1.1%, as is the Nasdaq. Historically, April is the best month of the year for the Dow. Year-to-date, the Dow is down 1.7%, the S&P is flat, and the Nasdaq is up 3.6%.
While history suggests the coming month’s moves will be quiet, there could be an element of uncertainty given the coming midterm election. Per the Almanac, the Dow falls 0.7% in Mays during midterm years, a far worse performance than the overall average 0.02% decline.
For the S&P and the Nasdaq, midterm years have historically been significantly worse than non-midterm years. The S&P declines 0.9% in midterm Mays, while the Nasdaq has historically lost 1.2%. Again, the overall average is a gain of 0.2% for the S&P 500, and a rise of 0.9% for the Nasdaq.
Declines of 1.2% would hardly be catastrophic or even out of the ordinary for Wall Street, but it would extend the lengthiest stretch in correction territory that the Dow and the S&P 500 have seen in a decade. Furthermore, even sideways trading would threaten a “death cross” for the S&P 500 by memorial day. This ominous chart pattern, where a security’s 200-day moving average crosses over its 50-day, could occur by Memorial Day if current trends hold, according to Charles Schwab.
Read more: Stock-market bulls lose hope as indexes trade in a tight range
Just looking at years with midterm elections, May is the ninth-best month for the Dow and the Nasdaq, and the 10th-best for the S&P 500.
The coming midterm elections, particularly as campaigning begins to ramp up for the November vote, is widely seen as a potential political risk for markets. Goldman Sachs recently wrote that they were “one reason to expect that current elevated levels of uncertainty will persist in coming months.”
Read more: Stock-market investors brace for months of political uncertainty as midterms approach
Source : MTV
