May Almanac: Second Worst S&P 500 Month in Pre-Election Years
By: Jeffrey A. Hirsch & Christopher Mistal
April 20, 2023
May officially marks the beginning of the “Worst Six Months” for the DJIA and S&P. To wit: “Sell in May and go away.” Our “Best Six Months Switching Strategy,” created in 1986, proves that there is merit to this old trader’s tale. A hypothetical $10,000 investment in the DJIA compounded to a gain of $1,132,837 for November-April in 72 years compared to just $3,422 for May-October (STA 2023, page 54). The same hypothetical $10,000 investment in the S&P 500 compounded to $906,861 for November-April in 72 years compared to a gain of just $14,918 for May-October.
May has been a tricky month over the years, a well-deserved reputation following the May 6, 2010 “flash crash”. It used to be part of what we once called the “May/June disaster area.” From 1965 to 1984 the S&P 500 was down during May fifteen out of twenty times. Then from 1985 through 1997 May was the best month, gaining ground every single year (13 straight gains) on the S&P, up 3.3% on average with the DJIA falling once and two NASDAQ losses. 
In the years since 1997, May’s performance has been erratic; DJIA up fourteen times in the past twenty-five years (four of the years had gains exceeding 4%). NASDAQ suffered five May losses in a row from 1998-2001, down –11.9% in 2000, followed by thirteen sizable gains of 2.5% or better and seven losses, the worst of which was 8.3% in 2010 followed by another substantial loss of 7.9% in 2019.
[Pre-Election Year May Performance Table]
Since 1950, pre-election-year Mays rank poorly, #10 DJIA, #11 S&P 500, #8 NASDAQ, #8 Russell 1000 and #7 Russell 2000. Historically bullish pre-election forces do not consistently lift May. Four of the nine S&P 500 pre-election year May declines exceeded 4%, the worst was a 6.6% loss in 2019. Russell 2000 gained 10.6% in May 2003, notably boosting its average gain and ranking.
[Recent 21-Year May Seasonal Pattern Chart]
The first two days of May have historically traded higher, and the S&P 500 has been up 18 of the last 25 first trading days of May. Bouts of weakness often appears around or on the third, sixth, and twelfth trading days of the month while the last four or five trading days have generally enjoyed respectable gains on average. In pre-election years it has generally been better to lighten up on long positions early in May as the entire month tends to be weak (pages 42 and 44 STA 2023).
Monday before May monthly option expiration is much stronger than monthly expiration day itself albeit weaker for small caps. S&P 500 has registered only ten losses in the last thirty-three years on Monday. Monthly expiration day is a loser nearly across the board except for Russell 2000 with a slight average gain (+0.03%). The full week had a bullish bias that is fading in recent years with DJIA down seven weeks in a row and S&P 500 down six in a row. The week after options expiration week now tends to favor tech and small caps. NASDAQ has advanced in 23 of the last 33 weeks while Russell 2000 has risen in 26 of the last 33 with an average weekly gain of 0.91%.
[Vital Stats]