'Sell in May and Go Away' Might Just Be Pretty Good Advice
Here's why next month could signal the market’s direction in 2025 -- and why it might be a perilous period for investors.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Equities staged a large and unexpected rally last week. Despite nominal, at best, progress on new trade deals, stocks went into full risk on mode after a tough start of the week on Monday. By the close of trading on Friday, the Nasdaq had risen 6.7% and the S&P 500 was up 4.6%. This week will mark the close of April and the start of a new month of trading in May.
There will probably be more than the usual number of "Sell in May and go away" type articles in the financial press, given the spike in volatility in the markets over the past couple of months. That may turn out to be the right move this year. I do believe May will be a critical month for investors and could well determine overall market direction for most of the rest of 2025.
Investors bid up the market following the election outcome in November. This was primarily based on the belief that the new administration would roll back regulations and extend the 2017 tax cut package that expires at the end of this year. Regulations are indeed getting scaled back. There also has been an unexpected but much overdue culling of the federal workforce. With a razor thin margin in the House, it is yet to be seen if permanent tax cuts can survive the gauntlet to become passed legislation.
What investors were not counting on, obviously, was the most aggressive new tariff policies in many generations. This has roiled the global economy and markets. The impacts from this new trade direction are going to become much more noticeable in May. It takes approximately a month for a giant container ship to cross the oceans to get from China to the ports of the West Coast. This means parts of the U.S. will start to experience empty shelves in certain product areas and the projected container traffic in the port of Los Angeles is falling off a cliff.
Corporations have not started to implement widespread layoffs as they have adopted a wait-and-see stance to see how trade negotiations play out. That could change significantly as global trade flows ebb. This is especially true in areas directly impacted by trade such as logistics and warehousing. In addition, management commentary and guidance following first-quarter earnings reports all through May should tend to the conservative and pessimistic side. This is hardly a positive trend for investor sentiment.
This will likely prompt more analyst downgrades both on individual stocks and to price and earnings targets for the S&P 500. Citigroup took their earnings estimates for the S&P 500 in 2025 down from $270 to $255 earlier this month. More investment banks are likely to follow in the coming weeks.
Now, obviously, if a rash of new trade deals or at least frameworks for agreements are announced, previously listed concerns could dissipate like snowbirds in Florida during May. If little progress is made, however, last week’s equity gains are likely to be reversed, and a decidedly negative tone will settle on the market that may last well through summer or longer.
At the time of publication, Jensen had no position in any security mentioned.
