The stock market’s already above-average performance is likely to continue into the historically strong November to April period, according to analysts at LPL Research. While the saying “sell in May and go away” relates to the historical 1.5% average return of the S&P 500 in the six-month period from May to October, November to April has generated an average gain of 7% over the same 50-year-period.
With the S&P 500 Index up over 6% during what is typically the worst six months of the year, research firm indicates that it wouldn’t be a surprise to see stocks continue to break records.
Building on Strength
“Wouldn’t you know it, when the worst six months of the year are strong (like 2017), the best six months of the year that follow have tended to do even better,” said Ryan Detrick, senior market strategist at LPL Research.
In the years wherein the worst six-month period (May to October) was up at least 5%, the historically strong November to April period gained an average 9.2%, versus its usual 7% return. In these instances, like the current situation where we’ve experienced a bull market in a typically calm period, the average November return has been 3.4%, with the average gain in November and December at 5%. The remainder of the fourth quarter (November to December) and the following six-month period saw greater average returns compared to all periods.
While based on the past, it seems probable that the stock market will continue to surge higher on momentum, Detrick warned that investors should “be ready in case there is some overdue volatility.” As stocks drive ahead on their longest run without a 3% dip, factors of uncertainty loom, including potential changes to the tax code. (See also: How to Hedge Against a Stock Market Plunge: Bank of America.)