Investors should ignore the adage about selling off equities in May as a big preelection summer rally could be coming, according to Bank of America. “Do not sell in May and go away,” Stephen Suttmeier, the firm’s technical research strategist, told clients in a Tuesday note. It’s a well-known yet hotly debated phrase. It stems from the fact that the Dow Jones Industrial Average has gained 0.8% in the average year since 1950 between the start of May and the end of October, much less than the 7.3% jump typically seen from Nov. 1 till April 30. But Suttmeier looks at the data a different way. He pointed to the fact that June through August has been the second strongest three-month stretch for the S & P 500 for all years since 1928. In those three months alone, the broad market index has gained 65% of the time with an average return of 3.2%, according to Bank of America data. That can indicate the market may be in for significant gains this summer if history repeats itself. .SPX YTD mountain S & P 500, YTD And there’s a key factor Suttmeier sees changing the narrative for the better this year: the presidential election. In presidential election years, the S & P 500 is higher in the three summer months about 75% of the time, with an average return of 7.3%. Suttmeier’s call comes amid a period of uncertainty in the market. After a strong run-up in 2023 and the first quarter of this year, stocks have taken a leg down amid rising uncertainty about when interest rates will start coming down. Federal Reserve Chair Jerome Powell said last week that the central bank would likely not increase interest rates in its next move, though little progress on batting down inflation has made it hard to predict when rates can actually begin being lowered. Elsewhere, Suttmeier noted that 28-week Williams %R, a measure of intermediate-term momentum, has jumped back into overbought territory. Still, he noted that an overbought market should be viewed as a healthy one.
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