Sell in May and Go Away. About That.

Here is the pattern everyone knows. Since 1945, the S&P 500 has averaged just 2.1% between May and October, versus nearly 7% in the November through April stretch. The explanation is boring but real: lower trading volumes, summer holidays, lighter institutional activity. The seasonal weakness is genuine and it shows up consistently in the long-term data. And yet, right now, the setup could not look more different from a typical May entry point. The S&P just closed its best April since 2020. The semiconductor index went 22 for 23 sessions. AI capex commitments just hit $751 billion. The market is coming off one of its strongest momentum runs in years. So the old rule meets a genuinely unusual environment, and that tension is worth framing clearly.

The key observation is that seasonal patterns describe historical tendencies, not current conditions, and the two have rarely looked more different from each other than they do right now.

The case for ignoring the seasonal warning this year is not hard to make. Over the past decade, the May through October period has actually averaged 7%, not the long-run 2%, driven by tech dominance and algorithmic trading that has largely arbitraged away simple calendar effects. Bank of America's analysis of 98 years of data suggests the real pain tends to show up in August through October, not May itself. May has been positive 79% of the time over the past 20 years, with an average return of 0.72%. Not exciting, but not a disaster either. And in the second year of a presidential term, which 2026 is, the S&P has historically shown a bullish bias through May with a 60% hit rate. This is also a midterm election year, though, and in five of the last ten midterm years the S&P declined May through October with an average loss of 1.5%. (LPL Financial, Bank of America, CFRA Research)

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This is typically classified as a seasonal inflection environment. The calendar has turned to a historically weaker stretch for equities, but the momentum, earnings, and structural backdrop are pointing in the opposite direction. These environments tend to produce more noise than signal around the seasonal narrative itself, with headlines amplifying the pattern while the actual market data tells a more nuanced story. Experienced investors know that seasonality functions as a probabilistic backdrop, not a forecast, and its influence is weakest when the dominant macro and earnings drivers are strong.

Experienced investors focus on the current regime's drivers rather than the calendar. One key signal is whether earnings momentum continues to broaden beyond tech into consumer and industrial sectors, which would argue that the market's fundamental support is real enough to override seasonal headwinds. Another signal is September, historically the worst month of the year with an average return of negative 2.19% and only a 40% win rate. If there is a seasonal effect this year, the data suggests it shows up then, not in May. Investors also watch whether the macro environment shifts meaningfully enough between now and August to change the dominant narrative, since seasonal patterns are most powerful when nothing else is driving the tape.

A common misread is treating the seasonal pattern as a predictive signal rather than a historical tendency. A $1,000 investment in the sell-in-May strategy from 1976 to 2025 grew to $46,000. The same investment in buy-and-hold grew to $295,000. The pattern exists but its practical value has been limited. Another misread is assuming that a strong April makes a weak May more likely. Returns in consecutive periods are largely independent, and momentum tends to persist until a genuine fundamental catalyst reverses it. There is also a tendency to conflate the seasonal average with the individual year, when the variance around that average is enormous.

Focus on the regime, not the calendar.

Seasonal patterns are most useful as a risk-awareness tool, not a timing signal. The mental model here is context versus pattern. When the dominant regime, AI earnings, momentum, and a market that has priced a specific outcome, conflicts with the seasonal tendency, the regime has historically had the stronger pull in the short run. The calendar is worth knowing. It is not worth following blindly.

Sell in May has underperformed a simple buy-and-hold strategy by an extraordinary margin over the past half century, and the last decade of tech-driven summers has made the pattern even weaker. The more relevant question for this specific May is not whether history repeats but whether the earnings and AI momentum that drove April's record run has the fundamental support to carry through the historically softer months. September, not May, is where the seasonal data says to pay closer attention.

Talk soon,
The Playbook Daily