There’s an old Wall Street adage that urges investors to “sell in May and go away” — but CFRA Research says there’s an even smarter way to play the market this spring. According to the Stock Trader’s Almanac , the worst six months of the year for the S & P 500 starts in May and runs through October. The almanac says that looking at stock market data going back to 1950, a $10,000 investment in the Dow Jones Industrial Average would have compounded by $1.13 million if it had been invested only from Nov. 1 to April 30. Meanwhile, a $10,000 investment would have only increased by $3,422 if it were invested every year between May 1 and Oct. 31.The almanac assumes the money was invested in fixed income securities the other six months. However, CFRA’s chief investment strategist Sam Stovall tells investors “rotate, don’t retreat!” The strategist says traders can look toward defensive names during the May slump, instead of entirely exiting the market. “Some sectors will have their day in the summertime sun, while others skate along smoothly in winter,” Stovall said in a report to clients Monday. “Since 1990, while the overall market was eking out an advance of 2.2% during the challenging [May to October] period, the defensive S & P 500 consumer staples and health care sectors recorded average price gains of 4.5%.” Conversely, as the S & P 500 recorded its strongest six-month return in the November to April period, the cyclical consumer discretionary, industrials, materials, and technology sectors outpaced the market as a whole. Indeed, since 1990, while the entire S & P 500 gained 6.7% annually, average price gains from equal exposure to these four sectors returned 9.0%. The stock almanac’s editor, Jeff Hirsch, said that reducing long exposure and adopting a defensive stance will pay off for investors during the low period. “For those with a lower risk tolerance or a desire to take a break from trading, the ‘Worst Months’ are a great opportunity to unwind some longs and move into the relative safety of cash, Treasury bonds, gold and/or some combination of traditional defensive assets,” Hirsch said in a recent blog post. —CNBC’s Michael Bloom and Scott Schnipper contributed to this report.
