The Little Book of Stock Market Cycles: How to Take Advantage of Time-Proven Market Patterns

Chapter Eleven

Summer Doldrums

Why Summer Months Give Investors a Reason to Relax

In recent years, if you waited until May to sell and go away it was already too late. On May 6, 2010, traders and investors were blindsided by the first “flash crash.” In a matter of minutes, the Dow plunged nearly 1,000 points but was able to recover much of the decline to close the day down only 347.80 points.

In 2011, May was the first of five consecutive declining months that would ultimately shave 16.8 percent off of the Dow from its April closing high to its October closing low. So spare yourself the pain and anguish of these months and consider exiting the market in April, and enjoy the start of warmer weather and a summer vacation.

May Matters

May has been a tricky month over the years. It used to be part of what we called the “May/June disaster area.” From 1965 to 1984 the S&P 500 was down during May 15 out of 20 times. Then from 1985 through 1997, May was the best month, gaining ground every single year (13 straight gains) on the S&P, up 3.3 percent on average with the Dow Jones Industrials falling once and two NASDAQ losses.

In the years since 1997, May’s performance has been erratic, up only 6 times in the past 15 years (4 of the years had gains in excess of 4 percent). NASDAQ suffered five May losses in a row from 1998 to 2001, down −11.9 percent in 2000, followed by six sizable gains in excess of 3 percent and three losses, the worst of which was 8.3 percent in 2010.

May begins the Worst ...