Summer is often associated with taking a well-earned break, spending more time outdoors, or enjoying a holiday.
Investment markets have long had their own association with the season. The old market saying “sell in May and go away”, popularised during the 1950s, reflects the belief that equity markets tend to underperform during the summer months.
Whilst there is some historical evidence to support this pattern, it is far from a reliable investment strategy and remains widely debated.
The “sell in May and go away” adage is based on the observation that equity markets have, on average, delivered lower returns between May and October than between November and April.
Since 1990, the S&P 500 has generated an average return of approximately 3.0% during the May to October period, compared with around 6.3% between November and April.
However, the evidence is far from conclusive. Looking at different market indices or extending the time period can produce very different results. For example, analysis of the S&P 500 dating back to the 1930s shows that, in several decades, the summer months actually outperformed the winter period.
Individual years also vary considerably. In both 2009 and 2020, summer returns significantly exceeded those achieved during the preceding winter months.
There is no universally accepted explanation for why seasonal patterns appear in financial markets.
Lower trading volumes during the holiday season are often cited as one possible factor, as reduced market participation can influence liquidity and short-term price movements. Investor sentiment, institutional portfolio rebalancing, and seasonal changes in risk appetite have also been suggested as contributing factors.
However, these influences are often outweighed by more significant drivers of investment returns, including interest rates, inflation, corporate earnings, economic growth, geopolitical developments, and monetary policy.
In practice, markets rarely move because of the calendar alone.
The key question is not whether summer returns have occasionally been weaker, but whether acting on this historical pattern improves long-term investment outcomes.
Moving in and out of markets requires two correct decisions: when to sell and when to reinvest. Getting either decision wrong can result in missing periods of strong market performance.
This is often easier said than done. Research has consistently shown that missing just the market’s 10 best trading days over a 20- to 30-year investment period can reduce long-term returns by more than half. Many of these strongest trading days also occur shortly after periods of market weakness, rather than following a seasonal pattern.
Frequent trading can also create transaction costs, potential tax consequences, and unnecessary disruption to a long-term investment strategy.
For many investors, remaining appropriately invested has historically proven to be a more reliable approach than attempting to predict short-term market movements or seasonal trends.
Investment returns are driven far more by asset allocation, diversification, corporate earnings, interest rates, inflation, valuations, and economic growth than by the month in which capital is invested.
Whilst seasonal market patterns can provide useful context, they form one small part of a much broader investment picture.
At Patterson-Mills, we believe successful investing is built on disciplined portfolio construction, regular reviews, and ensuring that investment strategies continue to reflect changing objectives, risk tolerance, and personal circumstances over time.
Rather than reacting to short-term market trends or seasonal patterns, we work with clients to ensure their portfolios remain appropriately diversified and aligned with their long-term financial goals
If you would like to review whether your current investments remain aligned with your circumstances, send us an e-mail to contactus@pattersonmills.com or call us direct at +44 (0) 1908 503 741 and we shall be pleased to assist you.
Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal, or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.
