“As goes January, so goes the year”—known as the January Barometer—is an old market adage suggesting that January’s returns can predict performance for the remainder of the year. The idea surfaced in the 1970s and still finds believers among some traders. If the January Barometer holds, 2024 could look promising for Canadian investors. At the same time, market conditions have renewed interest in the familiar seasonal rule: “sell in May and go away.”
I don’t personally follow or endorse this saying as a strict investing rule, yet its longevity shows why investors should at least understand it. With May approaching, Canadian savers and investors ought to know what the phrase means and how—or if—it should influence their decisions. (Also consider learning about tax-loss harvesting strategies while evaluating seasonal moves.)
What is “Sell in May and go away”?
The phrase refers to a seasonal approach that involves selling equity positions around May 1, holding proceeds in cash or short-term instruments through the summer, and reinvesting after Halloween. The rationale is simple: historically, markets have often underperformed from May through September and performed better from October through April.
That pattern is not guaranteed. Which months outperform or underperform can vary from year to year, and the timing of rallies and pullbacks is often inconsistent. The central question becomes whether the pattern reflects a true seasonal effect or simply a repeated perception that investors and media amplify.
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Why “Sell in May and go away” keeps coming back
The saying likely traces back centuries to trading patterns in England, when brokers historically reduced activity during the summer months. Vacation schedules meant fewer participants in the market, and lower trading volume can magnify price moves—both up and down.
Today, the same cultural habits persist: many managers and individual investors take time off over the summer, reducing market liquidity. With thinner volume, daily moves can appear more dramatic, which makes seasonal patterns feel more persuasive than they might be under normal conditions.
Behavioural science helps explain why such sayings endure. People tend to remember striking negatives more vividly than routine positives, which amplifies perceived patterns. And while seasonal performance differences exist in historical data, they aren’t consistent enough to justify treating the rule as an infallible strategy. For example, some summers have produced strong market gains rather than losses, highlighting that the “sell in May” thesis can fail in practice.
That said, there are times when selling part of a position in May may make sense—especially if markets are extended, valuations are elevated, or you want to lock in gains. The decision should stem from personal goals, risk tolerance, tax considerations, and portfolio balance rather than a calendar-based rule alone.
People naturally look for patterns to simplify complex decisions, but patterns can break. If you structure your investing solely around recurring signals, you risk scrambling when those signals stop working. I watch notable seasonal trends and understand their drivers, but I prioritize fundamentals and disciplined planning in my own investing.
The fundamentals are fundamental for a reason
Markets are diverse: when one sector or stock declines, another often rises. That means there are usually quality opportunities available if you focus on fundamentals—metrics that reveal companies with solid earnings, healthy balance sheets, reliable cash flow, and attractive valuations. Identifying businesses trading at a discount to intrinsic value remains a time-tested approach. Dividend-paying investments can provide an additional buffer and steady income while you wait for longer-term appreciation.
Seasonal sayings like “sell in May and go away” can be a useful prompt to review your portfolio, rebalance if needed, or harvest gains and losses for tax efficiency. But for long-term success, lean on a clear plan, diversification, and consistent attention to company and market fundamentals rather than calendar-based rules alone.
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