By MARK HULBERT
Surprised by the stock market's strength on the first trading day of May, when many traders were otherwise wondering if they should "sell" and "go away?"
Perhaps we shouldn't have been.
My review of the historical record found that May over the last couple of decades has actually been one of the stronger months of the calendar. Its terrible reputation traces to decades longer ago.
Consider first the period since 1896, when the Dow Jones Industrial Average was created, up through the 1980s. Over that 94-year period, May on average was eclipsed only by September as the worst month of the calendar for the stock market.
Over the next two decades, in contrast, May became one of the best months of the year. When ranked by average returns over those 20 years, it's in 3rd place.
One reason that traders haven't been inclined to give May much respect, I suspect: Memories are still fresh of the so-called "Flash Crash" that occurred in May 2010. On that infamous day two years ago, the Dow lost nearly a thousand points in a just a few minutes' time.
In any case, there clearly is a lot of variability in the monthly rankings. And that in turn should prompt us to step back and assess why this seasonal pattern should exist in the first place.
And when we do that, we find even more reason to give May more respect.
Consider the only explanation I've seen proposed for why the period between May and October should be a below-average one for the market. It emerged from a study a decade ago by Ben Jacobsen, a professor of finance at New Zealand's Massey University, and Sven Bouman, a managing director at Saemor Capital, a Netherlands-based investment firm. (An article summarizing their findings appeared in the December 2002 issue of the American Economic Review.)
After exploring several different hypotheses, the researchers found the most support for the notion that seasonal weakness between May Day and Halloween is caused by the timing of investors' and traders' summer vacations.
But it's not clear how that applies to the month of May in the U.S. I am not aware of any significant exodus from Wall Street to the Hamptons that occurs in May.
The bottom line? Even if you're inclined to follow the Sell In May and Go Away seasonal strategy, there is no reason -- either statistical or theoretical -- to immediately sell once the calendar flips from April to May.