A Summer Stock-Market Strategy: Invest Defensively

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“Stay and play” could make more sense for stock investors this summer—in the right sectors

Stock-market investors might want to “stay and play” this summer rather than “sell and go away.”

We’re referring to the stock market’s infamous seasonal weakness between May Day and Halloween, which gave rise decades ago to the strategy known as “Sell in May and Go Away” . Since the S&P 500 was created in 1957, it has produced an average gain of 6.9% between Halloween and May Day , versus just 1.3% during the other six months of the calendar ., there’s less to this seasonal pattern than meets the eye.

Sam Stovall, chief investment strategist at CFRA Research, introduced one such strategy in his 2009 book, “The Seven Rules of Wall Street.” Formally called the CFRA-Stovall Equal Weight Seasonal Rotation Strategy, it calls for investing between May Day and Halloween in the consumer-staples and healthcare sectors, which historically have been more defensive.

From November to April, in contrast, the strategy rotates into more economically sensitive industries—specifically, industrials, materials, consumer discretionary and information technology. These industries have significantly higher betas, or sensitivities to movements in the overall market, than the industries favored in summer.

 

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