“Sell in May and go away” is a popular adage in the stock market that suggests investors should sell their stocks in May and stay away from the market until the end of October. The idea behind this saying is that the stock market tends to underperform during the summer months, so it’s better to sell your stocks in May and avoid potential losses.
The phrase is based on the historical observation that stock returns have been lower during the period from May to October compared to the rest of the year. Some theories suggest that this trend could be influenced by factors like decreased trading activity during summer vacations or a lack of significant market-moving events during that time.
However, it’s important to note that this adage is a generalization and not a foolproof strategy. The stock market is influenced by numerous factors, and its performance can vary widely from year to year.
If an investor had sold in May the components of the Nasdaq100 Index it would have missed a 17% rally of May and June, collecting “only” a 24.87%.
This year Nasdaq100 rose 41% and retraced only 1.45% , if we exclude yesterday positive session that avoided a -3% from the 2023 peak. The index would have to rise a further 11.49% to reach its record high made on November 2021.
While predicting when it would test its record high is beyond the ability of any researcher, we can try to understand if current rally will have a rotation of components or will be fueled by existing performers.
More than 50% of Nas100 members had a YTD performance below 15% and 22 members had a negative performance , with Moderna Inc. MRNA and JD.com ADR , JD among the worst with a -32.6% and a -36.6% respectively.
Among the top 25 there are Megacaps , where their weight matters. MSFT, AAPL, NVDA , AMZN, TSLA, META and GOOGL alone make 55% of Nasdaq100 market capitalization. Seven companies thus have a market weight relevance above 50% for the index.
Some sign of slowdown for some of these Megacaps would have a clear impact on Nasdaq100, while a rotation of lagging performers would give limited offsetting performance.
AI , Metaverse , software ,cloud computing, social media, electric vehicle and top range mobile phones and wearables must continue to overperform otherwise a retracement would be unavoidable for the index.
