What to Expect as the SPX Enters a Historically Bullish Period

The next six months might not be as positive as many believe

Investors are familiar with the seasonality adage ‘Sell in May and Go Away.” Historically, the six months from May through October have been the weakest part of the year for stocks, while the November-April period — though lacking a catchy slogan — has been the strongest. Since 1964 (when we have Investors Intelligence (II) data which I’ll get into later), the S&P 500 Index (SPX) has averaged a 6.5% gain from November through April, with 74% of the returns positive. The May-October period has returned significantly less on average, 1.95%, with 68% of the returns positive. The last 30 years show the same trend.

This year, the S&P 500 is flying into the most bullish part of the year. From May through October, the index has gained more than 20%, making it the best performance over those months since 1938. As a result, the SPX is at an all-time high and the latest Investors Intelligence sentiment survey shows market newsletters bullish on the future. In the rest of this article, I break down the SPX November through April returns to see if any of these facts influence the historical trend.

Strong May-October Periods 

As I mentioned above, this has been the best May-October period in over 80 years. Looking at data since 1964, the table below shows every year in which the SPX gained at least 10% in those months. There have been nine prior instances. The following November-April period averaged a return of 10.7% with 78% of the returns positive, an even stronger outcome than the typical November-April performance.

Bullish Investor Sentiment 

The sentiment survey by Investors Intelligence considers over a hundred published newsletters and determines the percentage that are bullish, bearish or expecting a correction (short-term bearish but longer term bullish). The latest report showed most of the newsletters, 52.8%, were bullish on stocks. The table below shows how the SPX has performed since 1964 from October through April based on the percentage of bulls in the poll at the start of November.

When expectations were high, the SPX returned about 3.2% over the next six months with 63% of the returns positive. This significantly underperforms compared to when the II poll shows less optimism.

Near All-Time Highs 

This next table shows how the SPX performed from November through April based on how close it was to an all-time high heading into November. In situations like now, with the index near an all-time high, stocks tended to struggle, averaging a return of just 1.4% over the next six months. In other words, the November-April period wasn’t bullish at all when the SPX started the period already at all-time highs.

Bullish Sentiment and near All-Time Highs 

Finally, I filtered out the times where the index was near an all-time high and the percentage of bulls in the II poll was above 50%. There are nine data points listed below, and the returns have not been good. In these situations, the SPX averaged a loss over the next six months of -1.35% and just 44% of the returns positive. While stocks have tended to be strong in the November-April period in general, they have performed very poorly when you consider the current environment (near an all-time high and bullish II sentiment survey). I guess the slogan I’ve been working on, ‘Buy in November and Thank Me Later’ will have to wait another year.