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It happens every year like clockwork.
The calendar turns to May, and the financial media starts offering the same tired advice: Sell your stocks and go away until the fall.
I’ve never been a fan of this. This year, I think following this advice may be one of the most expensive mistakes you can make.
per day Market 360I want to explain why I think “selling in May” is absolutely the wrong decision this year. Next, I’ll talk about what I think could be what I call the “Small Business Summer.”
I’ll also tell you how to get your hands on an exclusive watchlist of small-cap stocks I have my eye on, plus how to access my top-conviction small-cap picks in Stock breakout. I have shared all the details in my last report 10X Fed shock It happened Last week – and tonight at midnight is the last chance to watch it. So, let’s not waste any time – let’s dive right in.
Where does the phrase “sale in May” come from?
First, a little history – because I think it’s worth understanding where the phrase “sell in May” actually originated.
It didn’t start on Wall Street. It began in London in the nineteenth century. At that time, wealthy British financiers and stockbrokers would leave the sweltering city streets every summer for long holidays in the countryside.
This means lower trading volumes. Markets became quiet. Stocks tended to drift sideways or down until the money men returned in the fall.
The full saying was actually: “Sell in May and go away, and come back on St. Leger’s Day.”
The St Leger Stakes is a popular autumn horse race, the final leg of the British Triple Crown, dating back to 1776. So, wealthy bankers were telling each other to get out of the market until the September horse races.
When this phenomenon was imported to Wall Street, it stuck. And for a while, it actually worked. From approximately 1950 to 2003, the data more or less supported this.
But here’s the problem with it. Once everyone knows the system, it stops working. This applies to trading strategies, market quotes and everything in between.
What the data actually shows
Now, I’ll be fair. The summer months are not uniformly strong.
August and September remain among the weakest months on record. In the past 20 years, the S&P 500 has produced an average return of just 0.05% in August, and negative 0.67% in September. They’re only positive about half the time.
Frankly, if I were in charge, I would close the market throughout August every year. That’s when the “A-Team” heads to the Hamptons or travels to Europe for vacation. Team B takes charge, and markets tend to drift without professionals at the helm.
But this is where conventional wisdom breaks down. If you narrow down the period from May to October and look at the past 20 years, you’ll find that July was actually the best month for the market overall – up 2.54%. Not November. Not April. July.
So “sell in May and walk away” doesn’t just leave you on the sidelines during weak months. It leaves you sitting on some of the best trading days of the year.
Summer beanie hats
Now, this is where you can really go wrong if you follow the “May Sale” crowd this year.
Remember, the S&P 500 only tracks large-cap companies.
But right now, the Russell 2000 small-cap index is on fire. I believe this summer will be one of the best periods we have seen for penny stocks in years.
You see, while everyone was focused on the Magnificent Seven and trading huge cap companies in the AI space, there was a quiet rotation into smaller companies.
Over the past year, the Russell 2000 is up 31%, compared to 23% for the S&P 500. Year-to-date, small caps continue to lead, up 11% versus the S&P 500’s 7.7%.
What makes small-cap companies interesting right now is that they are mostly local. They do not have the global exposure that makes large companies vulnerable to currency fluctuations, geopolitical turmoil and foreign economic slowdowns.
When the US economy grows, which is happening now, small businesses tend to feel this growth directly.
But that’s what makes me even more excited. Small businesses are still cheap compared to history. It currently represents just 4.6% of the total Russell 3000 market cap, well below the historical average of 7.6%. The valuation gap between small caps and large caps remains large even after this rise.
In other words, it’s starting to move. But it’s nowhere near the end.
After years of playing second fiddle to the big tech trade, capital is moving toward smaller, domestic-market-focused companies that have real earnings growth and real exposure to the U.S. economy.
And if you want to talk about seasonality, just take a look at the chart below. It shows that July was the second strongest month for small caps over the past 20 years, returning 2.36%.
That’s right around the corner, folks.
The best place to find your next winners
Bottom line: This is not a summer in which we should sit on the sidelines.
The small business opportunity is real. But you can’t just buy iShares Russell 2000 ETF (IWM) and walk away.
You need to find the right people.
for me Stock grader The system is built to do exactly that. It evaluates approximately 6,000 stocks each week based on two signals: the health of the underlying business and whether institutional money is starting to move quietly ahead of the headlines.
When both signals fire together and continue to fire month after month, I pay close attention – because gains usually follow.
By integrating Stock Grader into my portfolio Stock breakout On the service, where I focus on small and medium-sized businesses, subscribers receive 11 three-figure gains out of 29 holdings.
Each of these companies was smaller and less well-followed when Nizami pointed them out. Each one was too small for Wall Street’s largest funds to touch. All of them showed the same early mix of strong fundamentals and pre-crowd buying pressure.
The next group already exists. In fact, my system has flagged 53 stocks that are showing the same early signs…
Last week, I hosted my own 10X Fed shock eventwhere I laid out the full case for why I believe this is the most important small business opportunity I’ve seen in decades. I’ve shared my top-conviction picks from those 53 stocks. I’ve only given away one free name to attendees.
Your opportunity to watch the replay closes at midnight tonight.
Go here to watch the replay now.
sincerely,
Louis Navellier
editor, Market 360
