"Sell in May" Strategy Resurfaces as Stock Market Faces Uncertainty in 2025

The age-old adage “Sell in May and go away” is back in the spotlight as investors grapple with a turbulent U.S. stock market in 2025. With the S&P 500 rebounding 12% from April lows but still down 5.5% year-to-date, seasonal trends and geopolitical risks are colliding, leaving traders questioning whether history will repeat itself—or if unprecedented factors like Trump-era tariffs will rewrite the rules.

The “Sell in May” Phenomenon: A Historical Perspective

The “Sell in May” strategy, rooted in decades of market data, suggests that investors should exit equities in May and reinvest in November to capitalize on seasonal strength. According to Bespoke Investment Group, a fund tracking the S&P 500 from November to April yielded a staggering 731% cumulative return since 1993, compared to just 171% for May-October holdings. The pattern held most recently between November 2023 and October 2024, reinforcing its historical credibility.

A longer-term analysis from the Stock Trader’s Almanac paints an even starker picture: Over the past 74 years, the S&P 500 returned a mere 35% during May-October periods versus an eye-popping 11,657% gain in the November-April window. This disparity highlights the seasonal headwinds that often plague summer and early fall trading.

Why 2025’s Market Context Matters

This year, the “Sell in May” debate is complicated by unique challenges:

1. A Rocky Start for Stocks: The S&P 500’s 5.4% decline through April 2025 marks its worst first four months since 2020. Historically, weak starts correlate with poorer May-October returns. Bespoke’s data shows that in years when the index began negatively, May-October returns averaged -0.4%.
2. Elevated Volatility: The Cboe Volatility Index (VIX) remains elevated at 25, well above its 20-year average of 20. Tyler Richey of Sevens Report Research notes that high volatility entering May often amplifies seasonal weakness.
3. Tariff Uncertainty: Former President Donald Trump’s tariff policies, paused until July 2025, loom over markets. A mid-year expiration could reignite trade wars, adding unpredictability to equities.

“The scales are tipped in favor of the ‘May-Sellers’ this year,” Richey warns, citing skewed risks toward another downturn. However, Jay Woods of Freedom Capital Markets cautions, “We’re more held hostage to tariff discussions than any seasonal trend.”

The Case for Defying Seasonality

While history favors the “Sell in May” approach, critics argue that long-term investors benefit more from staying the course. Bespoke’s analysis reveals that simply holding the SPDR S&P 500 ETF Trust (SPY) since 1993 would have delivered a 2,100% return—a testament to the power of patience.

Key counterpoints to seasonal timing include:

• Transaction Costs: Frequent trading erodes returns through fees and taxes.
• Missed Opportunities: Bull markets often see sharp rallies during “weak” seasonal periods. For instance, the S&P 500 surged 10% during May-October 2020 amid post-pandemic stimulus.
• Evolving Markets: Algorithmic trading, global crises, and policy shifts (e.g., tariffs) diminish historical patterns’ reliability.

Tariffs: The Wild Card in 2025

Trump’s tariff pause, set to expire in July, adds complexity. Renewed trade tensions could disrupt supply chains, inflate consumer prices, and spark market volatility—factors that might overshadow seasonal trends.

“We’re in a tariff world now,” Woods emphasizes. “Investors must weigh Washington’s next move more heavily than the calendar.” Recent earnings reports from multinationals like UBS and Société Générale already reflect turbulence from trade policy shifts, with companies citing fluctuating commodity prices and export challenges.

Technical Signals vs. Seasonal Headwinds

Despite the gloomy seasonal outlook, technical indicators suggest cautious optimism:

• The S&P 500 recently reclaimed the 5,500 level, retracing 50% of its 2025 peak-to-trough decline—a bullish sign for chart analysts.
• Investor sentiment, measured by the AAII Bull-Bear Spread, hit extreme pessimism in April, a contrarian buy signal.

However, these signals clash with macroeconomic risks. Friday’s U.S. employment report could sway sentiment further, with strong job growth potentially fueling inflation fears and rate hike speculation.

What Should Investors Do?

For those weighing the “Sell in May” strategy, consider these steps:

1. Assess Risk Tolerance: Volatility-prone portfolios may benefit from reducing equity exposure.
2. Diversify: Hedge with defensive sectors (utilities, consumer staples) or assets like gold and bonds.
3. Monitor Tariff Deadlines: July’s tariff decision could dictate short-term market direction.
4. Focus on Long-Term Goals: Time-tested data shows that buy-and-hold strategies outperform timing attempts over decades.

The Bottom Line

The “Sell in May” adage offers a compelling historical narrative, but 2025’s unique blend of weak early-year performance, tariff uncertainty, and mixed technical signals demands a nuanced approach. While seasonality tilts odds toward summer weakness, investors must prioritize adaptability in a market increasingly driven by geopolitical winds rather than calendar pages.

As the old Wall Street saying goes, “The trend is your friend—until it bends.” In 2025, the bend may come from Washington, not the seasons.