SUPERNEWS

Macro

BoA: Skip "Sell in May", Eye 7.3% Election Year Rally

Bank of America predicts a summer rally, especially in election years, with S&P 500's historical gain of 7.3%.

By Bill Bullington

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5/8, 07:10 EDT
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Key Takeaway

  • Bank of America advises against the "sell in May and go away" strategy, predicting a significant pre-election summer rally.
  • Historical data shows the S&P 500 gains an average of 3.2% during June-August since 1928, with even higher returns of 7.3% in presidential election years.
  • Despite recent market uncertainties and interest rate concerns, indicators like the 28-week Williams %R suggest a healthy overbought market condition.

Summer Rally Predicted Amid Election Year

Bank of America's technical research strategist, Stephen Suttmeier, advises investors to dismiss the traditional "Sell in May and go away" strategy this year, citing historical data that suggests a significant summer rally could be on the horizon. The S&P 500 has shown a tendency to perform well during the summer months, particularly in presidential election years. Since 1928, the index has gained an average of 3.2% from June to August, with a success rate of 65%. This performance is even more pronounced during election years, with the S&P 500 climbing 7.3% on average in the summer months.

Presidential Elections Boost Market Optimism

The anticipation of a presidential election seems to buoy market sentiment, with historical data indicating that the S&P 500 typically rises 75% of the time during the summer of election years. This trend is supported by the current market environment, which has seen a resurgence in momentum thanks to solid corporate earnings and renewed expectations for Federal Reserve rate cuts. Despite recent market uncertainties and concerns over inflation, Suttmeier points to the 28-week Williams %R indicator's move into overbought territory as a sign of a healthy market poised for gains.

Investment Strategies for the May-October Period

Given the weak seasonal trends traditionally associated with the May to October period, investors might consider alternative strategies to navigate these months effectively. The recent rally, driven by better-than-expected corporate earnings and a soft jobs report, suggests that there could be opportunities for gains despite the historical precedent for summer slumps. Strategies such as sector rotation, focusing on dividend-paying stocks, low-beta investments, value investing, and quality bets could offer pathways to building a winning portfolio during this period.

Street Views

  • Stephen Suttmeier, Bank of America (Bullish on the market):

    "Do not sell in May and go away... June through August has been the second strongest three-month stretch for the S&P 500 for all years since 1928."